Monthly Archives: November 2008

Maybe it was deliberate kite-flying. Maybe David Cameron thought that he was only talking to a handful of northern businessmen. Either way the Tory leader indicated this week – at a meeting of the Greater Manchester chamber of commerce – that he was minded to move away from public sector final salary schemes: “We’ve got to end the apartheid in pensions,” he said.

There is cold logic behind the position: the state may struggle to keep supporting the ever-growing cost of public sector pensions: a £650bn liability over 20 years.

But for millions of workers – whose pay has barely risen in recent years – decent pensions are arguably their greatest incentive to keep on the state’s payroll. What does Cameron hope to gain electorally from voicing this argument? Read more

The Tories are rapidly distancing themselves from the suggestion — made by their leader — that public sector pensions should be phased out.

It is worth reading the full transcript of what David Cameron said in a Q&A session at the Manchester Chamber of Commerce: Read more

James Crosby’s report on Monday recommended state guarantees for £100bn of new mortgage-backed securities to help get banks lending to home-buyers once again. I pointed out here that Crosby himself had reservations about this idea when he wrote his interim report in the summer.

Treasury officials tell me that the situation has become more desperate since then. But surely the fundamental pros and cons remain the same.

Mervyn King seemed unimpressed with the idea when he spoke on Tuesday, describing securitised mortgages as a ”form of lending that for rather good reason has fallen out of favour”.

The final Crosby report says the government guarantee would only be used for new mortgages, not for re-financing existing ones. It would be available to banks and building societies. Only “prime” mortgages would be eligible: excluded are high loan-to-value loans, second charge loans or those to people with impaired credit histories.

How else would taxpayers be protected? The answer seems to be the ratings agencies. Read more

Germany is leading the fightback against Gordon Brown’s drive to stimulate the world. Angela Merkel is distinctly unimpressed by the case for a tax cuts, in spite of sitting on a big budget surplus. In a speech to the German parliament she endorsed Brown’s diagnosis of the problem, but dismissed his proposed solution.

“Excessively cheap money in the US was a driver of today’s crisis. I am deeply concerned about whether we are now reinforcing this trend through measures being adopted in the US and elsewhere and whether we could find ourselves in five years facing the exact same crisis.”

 Read more

The correction came within hours. But the damage was done. Andrew Lansley, shadow health secretary, discovered there are better ways to extend a political career than discussing the merits of a downturn. Labour claimed it was “shameful” for him to say that “on many counts, recession can be good for us”.

But was the real problem his failure to give more than one example? Shouldn’t he have gone further and made a comprehensive case? Don’t all economies, just like politicians, need a correction once in a while?

As politicians are unwilling to recognise the full worth of an economic slump, we will. Behold six good things about a recession. See it as an electoral platform for the inveterate optimist, or a pro-cyclical election pledge card. Read more

It proves once again the enduring truth of the last 50 years: that Labour governments always run out of money.

Alan Duncan speech to Conservative party conference, October 1, 2008 Read more


House prices will be rocketing at 6 per cent a year after 2010. No, that’s not estimate of your local estate agent. It is the considered opinion of the Treasury. Once you get past the gloom in the pre-Budget report — which estimates there could be a 25 per cent peak to trough house price fall relative to incomes — there is a fabulously sunny medium term forecast. Read more

The new income tax band on people earning £150,000 is a classic elephant trap for the Tories. Today, afraid of looking like the party of the rich, they could find no criticism for the new 45 per cent rate.

The measure only hits about 300,000 people. In this climate, this is a policy which will attract little opposition. Read more

Alistair Darling promised about £1.5bn today on “thousands of new and modernised social homes as well as regeneration projects.”

The money may soon be there. Spending it is easier said than done, however. Last week I reported on how the credit crunch has hit housing associations. Many are struggling with their finances and development is drying up.

The National Housing Federation  – which represents over a thousand registered social landlords – today warned that funding rules need to be changed as soon as possible.* Read more

Are Alistair Darling’s growth forecasts a bit too rosy? The Treasury provide a useful table to help us work it out. The short answer is that the chancellor is more optimistic than the City — but not as much as his predecessor Gordon Brown.

The Darling and City analysts are equally pessimistic about the recession in 2009. But the chancellor sees a stronger bounce back ahead. Economists predict about 1.2 per cent growth in 2010, yet in Darling world Britain will be sailing along at 1.5 to 2 per cent growth. Read more

We won’t do a comprehensive analysis of the pre-Budget report here: there will be plenty of analysis elsewhere on But just three observations.

1] The central assumption for RPI next year is -2.25 per cent: ie deflation. That doesn’t necessarily mean that CPI – which excludes house price inflation – will go negative. Read more

The long-awaited report on finance in mortgage markets – by Sir James Crosby – was published today alongside the PBR. This is a big deal. Ministers have been talking for months about how Crosby could hold the key to reviving becalmed mortgage markets.  

According to Alistair Darling’s speech, Crosby (pictured) is recommending government guarantees for new mortgage-backed securities. For a temporary period. Read more


This Bloomberg chart tells a striking tale. Credit default swaps are a form of insurance on gilts. People buying UK government debt acquire CDS’s to protect themselves against the risk of the country becoming bankrupt. Read more

The Treasury refused to comment on rumours swirling around Westminster yesterday that a big (temporary) cut in VAT would be the centrepiece of Monday’s pre-Budget report. 

The Sunday Times is tomorrow writing that there will indeed be a 2.5 per cent cut from 17.5 per cent to 15 per cent: the EU lower limit.

Such a move should appeal to the Labour heartland, given that VAT is a regressive tax which hits the poor harder than the rich. It also has the benefit that it can be implemented straight away.  

It would not be cheap, however: as much as £12.5bn, according to reports. It may have to be lifted to 20 per cent in a few year’s time (that is one theory anyhow). And would the move be enough to stimulate the economy? Read more

Officials are briefing thousands of job cuts in the civil service as part of Monday’s pre-budget report. *

No one has yet picked up on the idea that wages could also be squeezed. If public sector pay awards were restricted to 2 per cent when inflation was heading for 5 per cent, where will they be as RPI heads for zero? 

Perhaps it is no co-incidence that the Prime Minister has now warned of the potential for deflation – as indicated by Bank of England forecasts – several times in recent days. Is he softening up police, teachers and nurses for falling salaries?

If inflation falls to, say, -1 per cent, will the government maintain its policy of “below-inflation pay rises”? Read more

There are suggestions today that the prime minister apologised (in the Vine interview) for his hubris over Labour’s termination of the “boom and bust” cycle.

As if. According to my notes Mr Brown said that yes, he had mistakes. But he was careful not to link this quasi-apology to Labour’s economic record. Instead, the only specific apology he referred to in today’s interview was the 10p fiasco.

Gordon Brown was his usual frustrating mix of statistics, grandiose claims and non-sequiturs on BBC Radio 2′s Jeremy Vine show today.

It was all about the economy, of course. And the prime minister’s record on tackling the crisis.

Yet again Brown blamed the US for the credit crunch. As we’ve pointed out here – time and time again – this is only part of the problem.  

“The credit crunch started in America and has been a problem…I’m angry about what I saw happen in America – really angry – because these were risks that people were taking that we knew nothing about and they have affected everybody across the world.” Read more

Poor George. Never has a US president looked so forlorn on the world stage. What does Gordon Brown do as his friend Bush walks past, all lonely, looking for a bit of love? He stares at something in the distance, clocks George, half nods, quickly turns away and throws prime ministerial hand into warm homie-grip with Lula. Et tu Gordon?

[youtube][/youtube] Read more

The US National Intelligence Council has a distinctly unflattering forecast of Europe’s future in its Global Trends 2025 report.

The finest US intelligence analysts conclude that, according to current trends, the European Union is in danger of being left behind as “a hobbled giant distracted by internal bickering and competing national agendas”. The title of the section says it all: “Europe: Losing Clout in 2025″. Read more

Andrew Adonis: transport minister, historian, stand-up artist?

Lord Krebs: What does the Minister intend to do about local authorities such as Oxfordshire County Council which are removing cycle lanes and footpaths to make more space for cars and buses? Read more