John Ralfe, the pensions guru, drops me a line - in mock horror - to complain about the latest sneaky stealth tax.

“In completing my quarterly company VAT return today for the end of December
2008 I notice the following,

‘The reply envelope supplied with this return in no longer postage paid.
Please remember to affix a stamp to the envelope when submitting your
return.’

An £1 extra tax on each small business. What is the world coming to….”

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.” 

Peter Mandelson said at the weekend that there would be “no blank cheque” for industries suffering from the credit crunch.

But he sounded a little disingenuous when he claimed: “I don’t expect such a queue to form and one will not be welcomed.”

Continue reading "The banks got state aid: why can’t everyone else?"

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.

In August, the price of CDS’s for UK gilts was just 18 basis points. By the end of last week it had soared to 68bp. As of today the figure has reached 87.5bp. (The yellow line is the UK, the pink line is Germany).

This is a huge signal from the markets about Alistair Darling’s pre-Budget report and the revelation that annual borrowing could hit £120bn within a year or two.

The City is shorting UK plc.

UPDATE

In fairness I should add that the stock market has roared ahead this morning with the FTSE-100 up nearly 5 per cent at one point. In part this is because of PBR expectations, which have pushed up some of the big retailers. It is also thanks to news that Citigroup, the US bank, is receiving a $20bn capital injection and guarantees for $306bn of distressed mortgage assets. UK banks are among the biggest rises so far today.

The Conservatives have proposed a VAT holiday for struggling small businesses.

A six-month deferment would prevent some companies “going to the wall,” according to George Osborne.

The Spectator blog wonders whether this would run into difficulties with the EU. Would Brussels wave it through? 

Having spoken to one of our EU gurus, the answer seems to be: possibly not. 

Under Article 206 of the VAT Directive, member states have the option of setting a different date for payment.

But a proposal of this kind would have to respect “equality of treatment between VAT taxable persons”. If it only applied to some companies - and not others - that could be a problem. Furthermore, the proposal could be considered as state aid.  

UPDATE:

The Conservatives point out that the government has done something similar before. After the foot and mouth crisis it gave a VAT exemption to some businesses which were left struggling as a result. So yes it is possible. 

Gordon Brown has just told the UN that the “age of irresponsibility” is now close to its end.

Raising the obvious question: if everyone was so irresponsible, why did the Chancellor of the Exchequer (G.Brown, 1997-2007) do so little about it? The silliness in the banking world was not confined to the US, whatever the prime minister might claim.

All very well for Ed Balls to say this week - in the same vein - that those urging light-touch regulation had been “routed”. This argument is an attempt to rewrite history and unlikely to convince many.

Expect to see this all over the papers on Saturday morning.

It’s a serious question. We are set to hear a lot of words on this as Gordon Brown jets to New York tomorrow to discuss international financial regulation. “Supervision can no longer be national, it has to be global,” he has just said in his speech.

But how will a global regulatory monolith - based in Tokyo, or Wall Street for example - be able to monitor financial services more effectively than a national one?

Mr Brown will argue that financial markets are now more interconnected than ever before. A regulator in one country, for example the FSA, needs to communicate with those monitoring different arms of the same businesses in other markets. Fair enough.

Yet it seems very much as though he is simply trying to distract people from the failings of the British authorities.  

In my last job - the FT’s property correspondent - I met a 20-something salesman from Leeds who, on a salary of about £25k a year, had been lent £4m to purchase nearly 20 buy-to-let properties over a period of two years (he is now bankrupt). Just one example of Britain’s absolute failure to prevent ridiculous lending practices during the bubble years.

How, exactly, would a global regulator be better placed to spot this kind of thing?