Monthly Archives: May 2008

Sometimes the medicine takes a long time to work…

May 29, 2008 12:48 pm by Jim Pickard

A month or so has passed since the Bank of England unveiled its £50bn-plus liquidity injection to free up the financial system.

The radical move, which could see as much as £100bn of mortgage-backed securities swapped for gilts, was designed to pump confidence into the banking market.

The idea was that our mortgage costs would come down. And small companies would be able to access loans.

Not that ministers said this explicitly, but it was the obvious aim.

So how are we faring? Libor, the rate at which banks lend to each other, is still stubbornly high. The gap between the Bank of England base rate and 3-month sterling Libor remains at 0.86 per cent.

In a nutshell, that means mortgages are not about to become cheaper. Abbey is increasing some of its fixed rate deals by up to 0.56 percentage points today – only a week after it and some rivals carried out a couple of cuts, prompting speculation that the bad days were over.

And did I mention house prices (see various FT Westminster Blogs passim)? They fell by a record 2.5 per cent in May, according to Nationwide, the biggest drop since such records began.

Posted in UK politics | Permalink

Is the Treasury getting a windfall from high oil prices or not?

May 28, 2008 5:13 pm by Jim Pickard

The Treasury is not happy with the idea that it could scrap its proposed 2p increase in fuel duty AND its new tax on gas-guzzling cars – and still beat the relevant revenue forecasts by more than £4bn if oil prices stay at their current highs.

Here is the theory of Maurice Fitzpatrick, senior tax manager at Grant Thornton, the accountants:

Tax revenues from North Sea oil would jump from an estimated £10bn – struck when oil was only $84 a barrel – to £16bn at the current price of about $128 a barrel.
Since the Budget in March, the Treasury has already taken an estimated £820m more than its forecasts in North Sea oil tax.
The £6bn of surplus revenue would easily cover the cost of U-turns on both fuel duty and vehicle excise duty, where ministers are introducing new bands which could cost an extra £200 for drivers of inefficient cars.
Deferring the 2p increase in fuel duty by six months would cost £550m. Scrapping the revamped vehicle excise duty altogether would mean the loss of an estimated £465m next year and £735m next year – although ministers may only remove the retrospective element of this tax.

But Number 10 has disputed this, saying this afternoon: “The Treasury has always made clear that the impact of high oil prices on public finances tends to be revenue-neutral over the long-term.”

Here is their argument:

The increased revenues from oil when prices are high are offset by a number of factors including:

* an increase in pump prices leads to an increase in inflation. This knocks through to the inflation-linked payments that the government has to make, including benefits, pensions, tax allowances, and government bonds.

* reduced demand for fuel from filling stations, which reduces revenue from fuel duties – as this is fixed at 50.35p per litre if people buy less fuel, revenue from this falls.
* receipts from profits made by North Sea oil companies have in recent years been to some extent offset by capital costs, and the costs that have been rising for plant and machinery and labour costs too.

So there is a net offsetting effect.

That is the theory, anyhow.

Tags: Gordon Brown
Posted in Labour, Tax, Treasury, UK economy, UK politics | Permalink

Alistair Darling – are you sure about Northern Rock’s assets?

May 27, 2008 10:43 am by Jim Pickard

The Chancellor of the Exchequer reassured the world in the spring that Northern Rock’s assets were “good quality” as he set aside further billions of debt towards keeping the business going.

Even at the time this seemed odd, given the lender’s rush for market share last year at the top of the housing market. Among its products was the notorious 125 per cent loan-to-value mortgage, which has since ceased to exist.

My colleague Norma Cohen reveals this morning that repossessions at the Rock are racing ahead of its rivals. According to data from Standard & Poor’s, she writes……

“While loans originated by Halifax had a repossession rate of about 0.12 per cent as of March, those of Bank of Scotland had a repossession rate of 0.20 per cent while those originated by Northern Rock had a rate of 0.425 per cent.”

Here is the full article, which will make interesting reading for anyone who cares about the housing market, the economy and yes, UK politics.

Tags: Gordon Brown, Housing
Posted in Labour, Recession, UK economy, UK politics | Permalink

The latest expenses revelations: do we really care?

May 23, 2008 3:53 pm by Jim Pickard

It’s been a hell of a long time coming and here are the MP expenses highlights. With ear-splitting drum roll………

Tony Blair: £11,200 on a new kitchen in Sedgefield

Gordon Brown: A £4,700 kitchen and a £372 Sky subscription

Peter Mandelson: A £3,000 shower. Correction: bathroom improvements including a shower.

(As passed on by a Tory who spent the last two hours reading the expense claims, by 14 senior MPs, forced into the open today by freedom of information requests).

Senior Tories to follow once we’ve read through pages of this stuff.

I’ll leave you to decide whether this is a big deal or not. Bear in mind that it has always been open knowledge that MPs could spend about £23,000 a year on mortgage costs, rent and other expenses needed to maintain a second home.

UPDATE:

The Sunday Times has led with the receipt from Ann Keen MP, showing she claimed insurance on her 70-year old husband’s life. That does seem curious.

We thought the most entertaining nugget was in Gordon Brown’s expenses, where the then Chancellor failed to add up his sums properly – to his own advantage. Here is the full story.

Tags: Gordon Brown
Posted in Conservatives, Labour, UK politics | Permalink

MP calls for cabinet challenge to Gordon

May 23, 2008 1:35 pm by Jim Pickard

Just got off the phone with Graham Stringer, MP for Manchester Blackley, who has broken ranks and called for a (any) cabinet minister to challenge Gordon Brown for the Labour leadership.

If MPs know who might replace the prime minister it would make it easier to raise the 70 signatures required to start the process, he argues.

The system is stacked to make such a challenge difficult, he says. “Sneaking around trying to get 70 signatures would be a bit silly. We’re in a situation where it is almost impossible when you want a change to change things….I hope that any or some senior members of cabinet announce that they want to stand in a leadership election.”

There are now about 150 Labour MPs whose jobs look vulnerable in the wake of the Crewe defeat, he tells me. It is in their self-interest to challenge Brown, he says. “People are now fearful for their seats”. There was often discontent under Tony Blair, he admits, but that was different: “He was a winner”.

Ouch.

Tags: Gordon Brown
Posted in Labour, UK politics | Permalink

The voters of Crewe & Nantwich have spoken

May 23, 2008 9:59 am by Jim Pickard

A swing of 17.6 per cent to the Tories cannot be dismissed as “mid-term blues” or, as is often the case, a mildly discontented electorate giving the government a poke.

True, the swing is less than the two big Tory-to-Labour swings of the mid-90s, which preceded the landslide of 1997. Then, Labour took Dudley West (1994) and South-east Staffordshire (1996) with swings of 29 per cent and 22 per cent respectively.

But rewind the clock – 30 years – to the last Labour-to-Conservative byelection victory. That was Ilford North, which was won with a swing of just 7 per cent. It came one year before Margaret Thatcher’s seminal election victory which put the Tories in power for 18 years.

But how would the Conservatives fare in office? George Osborne, shadow chancellor, did not offer a wholly convincing roadmap when interviewed on the Today programme this morning.

As one former Labour minister told me – I interrupted his breakfast this morning – this is a bad time for any government; petrol prices, financial turbulence, commodity prices, inflation. Are the Tories offering much more than the classic “time for a change” message?

“A tiny bit of me says, ‘fuck you Cameron, you try and do it’. I’d love to be in opposition right now, undermining them, writing articles, tearing strips out of their policies,” says the Labour MP.

As an afterthought. The Liberal Democrats won’t be the focus of today’s coverage. But their meagre 15 per cent haul last night bodes ill for the third party. Remember: Lord Rennard and his men used to be known as the byelection pros. This morning, they are eclipsed.

Tags: Gordon Brown
Posted in Labour, UK politics | Permalink

Gordon: Maybe the public is “just not that into you”

May 22, 2008 1:26 pm by Jim Pickard

If and when Labour lose Crewe & Nantwich at today’s by-election there will be endless head-scratching about how Gordon Brown can improve his act.

There will be demands from the left of the party; and from the right. There will be debate about Mr Brown’s policy platform and whether it is right or wrong. No doubt his handling of the economic downturn will also be mulled over.

But my informal polling (friends, family, apolitical colleagues) brings to mind a famous quote from Sex and the City. One of the women is pining after a man and can’t work out why she has been spurned. A friend offers the cathartic reply: “He’s just not that into you”.

Members of the public who don’t like the Member of Parliament for Kirkcaldy and Cowdenbeath can’t always put their finger on why this is so. Unfair, but true. They’re just not that into him.

Here, my colleague Alex Barker offers some typically vague criticism from the people of Crewe – which may offer a pointer to Labour’s poor prospects tonight.

Tags: Gordon Brown
Posted in Labour, UK politics | Permalink

Why would anyone want to donate to Labour?

May 22, 2008 1:14 pm by Jim Pickard

The strapline is deliberately provocative. I’m sure you can think of many good reasons.

But there is little doubt that the Tories’ fund-raising attempts are going more smoothly than Labour’s.

In Q4 of 2007, the Conservatives raised £11.3m and Labour £5.9m.

Today the Q1 figures for 2008 came through.

At first sight the Tories don’t seem so far ahead; at £4.2m compared to Labour’s £3m. But this disguises a weird anomaly. Boris Johnson’s campaign to be London mayor – which raised nearly £1.5m – is excluded from the Tory figures. Money for Ken Livingstone, by contrast, is included within the Labour total.

We won’t know how much Ken raised for a few more weeks. But for a true like-for-like the number should be subtracted from the £3m tally.

Tags: Gordon Brown
Posted in Labour | Permalink

Does anyone want Ken Clarke back in the thick of British politics?

May 21, 2008 11:36 am by Jim Pickard

A story this morning by my colleague George Parker about the possible return of Ken Clarke to the Conservative front bench has set the cat among the pigeons.

As always, the charismatic Clarke divides Tory opinion, not least because of his views on Europe. You can get a flavour of the debate on this blog.

Posted in Conservatives, David Cameron, UK politics | Permalink

How many councillors are leaving the sinking ship?

May 15, 2008 2:23 pm by Jim Pickard

A senior Tory tells me, over a cup of Earl Grey, that 30 Labour/Lib Dem councillors have defected to the Conservatives in the last 12 months.

Only one Tory councillor has quit the party during the same period.

UPDATE:

Mea culpa - apparently my source (who should know better – you know who you are) has underestimated the number of Tory defections. Here is a link with some extra information.

Tags: Election
Posted in Conservatives, David Cameron, Labour, Lib Dems, UK politics | Permalink

What do the Labour troops make of their leader?

May 15, 2008 12:32 pm by Jim Pickard

Not a lot, judging by the latest poll by Labourhome.

A poll by the group – designed to “take the temperature of Labour activists” gave the highest scores (this is relative) to David Miliband at 5.48, Alan Johnson at 5.45 and Hilary Benn at 5.43.

The worst were Gordon Brown at 3.37 and Alistair Darling at 3.35.

Remember: these are Labour activists.

Posted in UK politics | Permalink

Did Darling pay too much?

May 14, 2008 4:25 pm by Nicholas Timmins

There is one statistic that really hammers home how expensive the 10p U-turn is. About £2bn of the £2.7bn in compensation is going to those who had already won from the 2007 Budget. Officials insist this was the only simple and quick solution. But there was another way that was cheaper and more comprehensive.

Ian Mulheirn, chief economist at the Social Market Foundation and a former Treasury official, thinks he has the answer. He believes the chancellor could have compensated all those who lost out for just £1.5bn. By contrast, the chancellor’s plan was almost twice as expensive but only covered 80 per cent of the 10p rate losers.

The main downside would be losing any political benefits from the bung to middle England. Indeed, that may be the reason it was not pursued.

The alternative involves raising the income allowance by £1,100 and tapering (or gradually reducing) the additional allowance away as a person’s income reaches 19,000. Mr Mulheirn calculates this would fully compensate the 5.3m losers for 1.5bn in a targeted manner. There would be no additional benefit to those higher up the income scale. The main downside is that it makes the tax system more complicated (but so did raising the allowance mid-year).

The graph below shows how this proposal compares to what Mr Darling proposed yesterday. The effect of the 10p rate is in blue, Mr Darling’s proposal is marked in red, and Mr Mulheirn’s is in green. The green line is clearly fairer to the poor. Was Gordon Brown was offered this solution? And did he decide against it?