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First it was Simon Wolfson, head of Next (admittedly a Tory supporter) who said the cut in VAT had made no difference to consumer spending.

Now Sir Stuart Rose, chief executive of Marks & Spencer, has admitted that the cut from 17.5 per cent to 15 per cent has “not made a material difference to our sales”. Coming from Rose - who is a member of Gordon Brown’s business council - this is rather damning.

We were sceptical about the VAT move before it even happened. The Germans didn’t think much of it either.

On Sunday’s Andrew Marr show the PM was peddling the line that it’s too early to judge the impact of the cut, which will last for another 12 months - ie we are only £1bn into the £18bn pre-budget report stimulus (of which £12bn is the VAT cut).

He might have added two further points:

1] The cut may have been designed to make people buy more stuff. But if they don’t they are still left with (slightly) more cash in their pockets.

2] We don’t know whether retail sales would be marginally worse without the VAT cut.

The prime minister’s promise to create 100,000 new jobs in a latterday New Deal is being treated with the suspicion it deserves.

In an interview in yesterday’s Observer, Gordon Brown said he would use public money to get people in work through new rail links, school repairs and other infrastructure projects - and also through building a “new low-carbon economy for the future”.

It is not just the 100,000 figure which seems fishy - we have written here before about the PM’s fondness for round numbers.

Leave aside the fact that - even if it was a genuine estimate - the number is a fraction of the million-plus workers expected to lose their jobs in the next year or two. 

Where does the number come from? Is there a breakdown anywhere? Will the extra money (if there is any) compensate for the difficulties in the PFI market? Were most of these infrastructure projects happening anyway? How many of them will be built within the next decade (impossible for big rail projects, for example)?

And does Mr Brown himself believe the “green economy” talk?  

Listening to the rhetoric, you could be forgiven for thinking that Britain was a pioneer in renewable energy. In fact we are at the back of the class - behind every EU country bar Belgium, Malta and Cyprus.  Given that the UK has more wind and waves than any other state in Europe this is an abysmal failure.

(Incidentally, the 100,000 figure is lower than some of those touted in previous months by the PM. Only last summer he made the prediction of 160,000 jobs in green energy alone. In June he said that there could be a million jobs in the wider environmental sector; albeit within two decades. And by September he was talking generally about a million green jobs*. Why has the number fallen?)

* “I am asking the climate change committee to report by October on the case for, by 2050 not a 60% reduction in our carbon emissions, but an 80% cut and I want British companies and British workers to seize the opportunity and lead the world in the transformation to a low carbon economy and I believe that we can create in modern green manufacturing and service one million new jobs.”

UPDATE

Separately, the Observer also reported that Mr Brown was studying a scheme at Nissan whereby the car company is moving staff on to part-time working with the remainder of their time spent in training schemes.

Corus, the steel giant, has also approached the government for this kind of help. This morning, however, No 10 were playing down the idea, suggesting that it’s more of an idea than a firm policy.

It’s taken months and years for anyone in Labour to admit that the government’s housing policy has been based on false assumptions. Time after time, ministers claimed that there was a desperate under-supply of housing in the UK; ignoring the role of speculation and cheap debt in the housing boom.*

But Ed Balls came close on this morning’s Today programme.

Here is what the education secretary said:

“There was a pretty strong view that we had a growing demand for housing in this country and a rising population, but we had much lower levels of house building than we’ve seen in previous generations in the private and the public sector.

“Therefore, there was a pretty strong view, which may still in part be true, that the real level of house prices had gone up, because there was more demand and less supply.”

In politician speak this is code for: we are distancing ourselves from the old line. Maybe 2009 will be year when the government drops its target of 3m new homes by 2020.

Continue reading "Balls admits that there was a housing bubble"

The Council of Mortgage Lenders firmly denied reports from the BBC a fortnight ago that its 2009 forecast for repossessions would be 75,000. The CML’s spokeswoman said on the record that this was the wrong figure and the real number was likely to be significantly lower. This is what we said at the time.

Today, lo and behold, the CML has put out its forecast. It is of course 75k. Maybe we shouldn’t expect anything different from the group - which spectacularly failed to spot the crash coming.

The other striking prediction today involves the number of households in arrears increasing at an even more rapid rate:

“By the end of 2008 the CML expects 210,000 households to be more than three months in arrears, and this number is expected to increase to 500,000 by the end of 2009.”

It is often wrongly claimed that Gordon Brown failed to spot the housing bubble. In fact, he called the bubble as early as 2005. The trouble was he believed he had addressed it. Brown thought he had successfully managed a boom without a bust.

You can relive the hubris of the time by reading this passage from Brown’s 2005 speech to the Labour conference. No modesty here. But I think it was the one and only time he has used the word “house price bubble” as chancellor or prime minister.

We will have the strength and resolution to take the right long-term economic decisions too.

Why has it been that at every point since 1997 faced with the Asian crisis, the IT collapse, a stock exchange crash, an American recession, last year a house price bubble, this year rising world oil prices, why has it been that at every point since 1997 Britain uniquely has continued to grow?

In any other decade, a house price bubble would have pushed Britain from boom to bust.

In any other decade, a doubling of oil prices would have put Britain first in last out and worst hit by a world downturn.

I tell you, it is because with Bank of England independence, cutting debt, fiscal discipline and the New Deal this Labour government has shown the strength to take the tough long-term decisions, that inflation is low, interest rates are low, growth has been sustained in every year, and we are closer than ever to the goal which drives us forward: the goal of full employment for our generation.

Labour, the natural party for economic strength in our country today.

The full video can been seen here on the BBC site. The bubble section is about 5 minutes and 20 seconds in.

You don’t need to be in Berlin to take a swipe at Gordon Brown’s economic record. Members of the monetary policy committee have started to put the boot in too. Andrew Sentance, one of the MPC’s external members, recently gave a thought provoking speech demolishing the idea of a “bust without a boom”.

While we may not have seen a classic inflationary boom-bust cycle on the 1970s-1990s model, it would equally be wrong to deny that the current bust was preceded by a boom of some sort….We are now appreciating that the earlier years of this decade saw an expansion of various forms of financial market activity which have subsequently proved unsustainable.

His conclusion is that the Brown era is markedly different from other post-war booms because of the remarkable stability in prices. But there was a bubble, he says, and the consequences from it unwinding will be no less severe.

In his piece on the speech, Chris Giles, the FT economics editor, uses Treasury figures to estimate just how unsustainable this bubble was. In the chart below he shows how a change in Treasury’s assumption of “sustainable growth” has flattened out the Brown boom and the Brown bust. How convenient.

Peer Steinbrück, Social Democratic finance minister, hardly pulls his punches in a Newsweek interview:

“Our British friends are now cutting their value-added tax. We have no idea how much of that stores will pass on to customers. Are you really going to buy a DVD player because it now costs £39.10 instead of £39.90? All this will do is raise Britain’s debt to a level that will take a whole generation to work off. The same people who would never touch deficit spending are now tossing around billions. The switch from decades of supply-side politics all the way to a crass Keynesianism is breathtaking. When I ask about the origins of the crisis, economists I respect tell me it is the credit-financed growth of recent years and decades. Isn’t this the same mistake everyone is suddenly making again, under all the public pressure?”

UPDATE: A Downing St spokesperson just invoked some of Mrs Merton’s homespun wisdom to laugh off the remarks. “As Mrs Merton might have said, I’m not going to speculate on what would have provoked the German finance minister to make these comments in an election year.”

Here’s a clip of the real thing.

The Treasury has just put out details of how its new anti-repossession scheme will work. (The one in which, if you lose your job, the bank will defer part of your interest payments for up to two years.)

They still only have support “in principle” from eight lenders. That means no change from last week’s announcement in the Queen’s Speech.

Here’s the link if you want to know more.

UPDATE: The Council of Mortgage Lenders are still lukewarm. “We still need clarification as to what the costs of the scheme may be for lenders.”

I am starting to wish I’d spent yesterday afternoon in the Lords rather than following the navel-gazing Commons debate over the structure of the committee looking into the Damian Green affair. (Why do MPs always turn up en masse when talking about themselves?)

Some real gems in the Lords’ Hansard.

Such as this hostage to fortune from Lord Myners, the new City minister, when asked about the £37bn bank bail-out. He was asked whether the money would enable new lending or just repair banks’ tattered balance sheets.

Both was the answer. It was available for new lending AND supporting banks in withstanding the inevitable write-offs.

“It is an all-weather capital structure, designed to withstand the pressures that we know bank balance sheets will have to cope with over the next 12 months so that banks are adequately capitalised to perform their economic function.”

We spotted the rapidly rising cost of insuring UK gilts against default in this blog on November 24.

Today the Tories pointed out that the relevant figure (credit default swaps) is now twice the cost of insuring the debt of McDonald’s, the fast food chain.

I liked this take on the story from Bloomberg:

“Britain risks being viewed pejoratively as a banana republic “apart from the technical disqualification that we have a monarch and so cannot be a Republic, and it’s too cold to grow bananas anyway,” says Sean Corrigan, who helps oversee about $8.5 billion as chief investment strategist at Diapason Commodities Management SA in Lausanne, Switzerland.”

UPDATE

The response from a government person: “Obviously there is something odd going on in CDS market. But what matters for taxpayers is long-term gilt yields, which remain very low. It’s a point Dave Ramsden (MD of the Treasury’s new Macroeconomic and Fiscal Policy Directorate) was making at Treasury select committee today.”

Lord Myners made a similar point yesterday.

This is what Myners said: “The noble Lord, Lord Higgins, asked how we will finance our debt going forward. We do so from a position where the cost of borrowing is at a lower rate in nominal terms - the long end of the gilt curve - than it has been for 40 years. We are in a position where there is a serious appetite for borrowing and buying government securities.”