BBC BLOGS - Peston's Picks
IN ASSOCIATION WITH
« Previous | Main | Next »

Lib Dem voice is loud on banks and tax

Robert Peston | 07:56 UK time, Wednesday, 12 May 2010

The Tories may have won the most votes and have secured the most MPs, but some in the City may well see the Tory-Lib Dem coalition as something of what they would call a reverse takeover by the Lib Dems.

Vince CableBecause much of is emerging as the new government's policies towards the banks and on taxation bears the influence of Vince Cable, the Lib Dem's shadow chancellor.

There'll be an independent commission to look at whether the big so-called universal banks, such as Barclays and Royal Bank of Scotland, should be broken up, so that the more speculative investment banking activities would be formally hived off.

This is consistent with the Tories' manifesto position, but Mr Cable is more enthusiastic about breaking up the banks than Mr Osborne.

I suppose you could see the establishment of such a commission as an argument deferred for a year or so between the Mr Osborne and Mr Clegg on whether Barclays and RBS should be allowed to remain in their current colossal form.

Also there appears to have been a slight softening in the Tory commitment to dismantle the City watchdog, the Financial Services Authority.

The Bank of England will be given control of so-called macro-prudential regulation (the contentious question of whether credit should be rationed, as a dampener on potential booms and busts) and it will have "oversight" of micro-prudential, which is the monitoring of individual banks and financial institutions to ensure they're not taking excessive risks.

But the pact between the parties won't be explicit that the bods who do that micro-prudential regulation at the FSA will end up working for the Bank of England - which looks like a move in the regulatory direction preferred by the Lib Dems.

What may shock many investors is that the coalition will more-or-less adopt the Lib Dem's policy on raising the capital gains tax rate to streamline it with income tax. That means the top rate of CGT will be at least 40%, and possibly 50%.

However a much lower rate will be applied to "entrepreneurial" business investment: the higher capital gains tax rate is aimed at extracting more revenue from speculation, but there will in a sense be a return to the system only abandoned by Labour a couple of years ago, where there were significant tax rewards for those who invest in wealth-creating activities for longer.

As I mentioned yesterday (see What a Tory/Lib Dem government would do), the tax priority would be to raise the income tax threshold in the course of the parliament to £10,000, to the benefit primarily of those on lowest pay.

And, as Stephanie said, there'll be a tweaking of the Tory pledge to reverse Labour's National Insurance rise, so that the reversal applies only to the NI paid by business, rather than by individuals.

Meanwhile, as I pointed out, the Tory manifesto promise to increase the inheritance tax threshold to £1m would be kicked into the long grass.

For most investors there will be relief that there will be no pulling back from the Tories' plans to cut the UK's record public sector deficit a bit more and a bit earlier than Labour or the Lib Dems would have done.

So I would expect sterling and the price of government bonds to rise this morning. But with the stamp of Mr Cable on much of the approach to banks and regulation, I think we may see a bit of weakness in banks' share prices.

Update, 08:42: An encouraging sign for the new government is that the rise in the price of government bonds that we saw late yesterday has continued this morning. Nothing dramatic - but it shows that investors have some confidence in the ability of the coalition to make in-roads into the record public-sector deficit.

The gap between the yield on equivalent German and UK government bonds has narrowed, which shows that investors believe the risk of lending to the British government has reduced.

Sterling has lost some of the gains it made against the dollar last night. And share prices have fallen a bit, though nothing too scary.

Update, 10:25: George Osborne and the Treasury will retain formal responsibility for overseeing banks and financial regulation.

However a new ministerial committee will be set up to devise banking policy, which will include Vince Cable as one of its members.

The committee will be chaired by Osborne as chancellor.

It looks as though Cable will be the secretary of state for business.

So what'll happen to Ken Clarke, who did that job in opposition for the Tories?

Update 10:35: BA, Virgin and the airlines may be in for a bit of a shock, because the Lib Dem policy of taxing planes rather than passengers has been adopted, as one of the coalition's green policies.

As I've mentioned, the Lib Dems have agreed to the Tory proposal for an accelerated programme to cut the so-called structural deficit in the public finances, with a £6bn down payment this year.

However the Lib Dems won a concession that part of that £6bn will be deployed for job creation.

A commitment to a new tax or levy on banks is part of their joint programme.

And a significant move towards a £10,000 income tax allowance will be made in the first Budget, due in 50 days.

Update 10:55: One of the most difficult areas of negotiation between the Lib Dems and the Tories was on nuclear power, where the Lib Dems take the view that new nuclear power should not receive a public subsidy of any sort and where they believe that there may be more efficient green generating alternatives for meeting CO2 reduction targets.

In the end, as I understand, nuclear power is one of those areas where the two have agreed to disagree. Which creates considerable uncertainty for the two big companies, EDF and Centrica, that are hoping to role out a series of enormous new nuclear stations.

And they may be alarmed that the person who'll be in charge of whether the new nuclear plant is built, as secretary of state for the environment, will be a leading Lib Dem, Chris Huhne.

Update, 16:53: I understand a leading business figure is likely to be made a peer in order to join the government, in the kind of role that was occupied by the former chairman of Standard Chartered, Mervyn Davies - with on foot in the Business Department and another in the Cabinet Office.

The obvious candidate is Simon Wolfson, chief executive of Next and close chum of Osborne and Cameron. But he's told pals and investors he has no intention of giving up the day job.

Comments

Page 1 of 2

  • Comment number 1.

    I hope the City's fear is justified!

  • Comment number 2.

    The BBC is ignoring the fact that we have a new Prime Minister. They have invented , without any evidence and with only the say so of Alastair Campbell and Labour politicians, a story that the coalition will fail. They have also decided that their job is to act as agents for the promotion of David Miliband to the post of Labour leader. How on earth do any of you expect the public to take any of you seriously when you have spent the morning so far broadcasting a series of lies, innuendoes, rumour and pure invention. I doubt everythning you say.

  • Comment number 3.

    Inheritance Taxes - perhaps some off the wall thoughts.

    Why not give 'relief from all inheritance tax', to those wealthy and active enough to contribute formally to the benefit of society?

    In other words, if some million/billionaires use their wealth and abilities to create new businesses or invest in business research and development institutes, with full employment and a turnover within say 5 years, approaching the value of their net wealth, they would be spared inheritance tax on that net wealth, in full?
    Or if they were prepared to donate say, at least 50% of their estate's net worth to improving schools and universities, say over £1million, they would then be spared inheritance tax on the remainder?
    Why not?

    On a lighter note, the question has to be asked - who plays Laurel and who will play Hardy?

    We now have a government with Messrs Cameron, Hague and Osbourne, replacing Messrs Brown, Milliband and Darling.

    Using the first characters of their surnames leaves us with a Government in HOC replacing a government that was a DBM!

  • Comment number 4.

    Shows how much they understand if they still want to break up the banks. I will say it again, the only "universal" bank that got in dire trouble was RBS and that was mainly because of ego. All the others were single system banks that had nothing to support them.

    But why let facts get in the way.

  • Comment number 5.

    Vince Cable is a very wise head, who warned of the reckless lending and the collapse of our banks, long before it happened.
    Had he been chancellor for the last 10 years we would probably now be sitting pretty, instead of facing austerity.
    But "Saint Vince" is now in power.....so get ready to duck Vince....some of the flak may be coming your way.
    And the best of luck with a monster of a problem.

  • Comment number 6.

    It’s all just rearranging the deck chairs on the titanic. The price of gold hit a new high yesterday, obviously not news worthy then. The system itself is crumbling, and those with money are cashing it in to buy gold before the inevitable crash in our FIAT currencies arrives.

  • Comment number 7.

    RP: There'll be an independent commission to look at whether the big so-called universal banks, such as Barclays and Royal Bank of Scotland, should be broken up, so that the more speculative investment banking activities would be formally hived off.
    ++++++++++++++++++++

    Ia there any doubt in the minds of anyone who is not a banker that they should separate 'Investment' snd 'Retail' banking?

    After much debate at great expense to the taxpayer, the will probably set up a UK Glass-Steagal Act.

  • Comment number 8.

    I hope Cam and Klegg can make a go of it, but the "tweaks" they're all huffing and puffing about are miniscule in relation to the structural deficit and overall debt. Meanwhile, the spivs carry on, blatantly manipulating equities, currencies and national economies for their own enrichment - and nothing more. I'd like to feel hopeful, but I don't.

  • Comment number 9.

    Vince Cable having the job of keeping the banks in check may be a benefit of coalition. The jobs clearly a two edged sword, VC can aim to leave a legacy without fear of the damage the banks could cause to his long term career, he can be given a free reign, both the tories and libs can take credit for success and blame others for failure.
    With regards to the B of E, did anyone think that they actually wanted responsibility? Mervyn King is good at blaming everoyne else for what happens on his watch and drifiting in and out with the odd comment, he certainly doesn't like the responsibilty of actually seeing things happen and doing something about it.
    The coalition is looking like a very good get out of jail card to ditch all the unaffordable promises. Maybe if it helps to drop what doesn't make sence then maybe its worth a try?

  • Comment number 10.

    @3 It's called Business Property Relief.

  • Comment number 11.

    Can we also have regulation of the derivative market? Particularly the introduction of the concept insurable interest.

  • Comment number 12.

    BUSINESS/BANKING - VINCE CABLE - Yeeeeas!

    There have been doubters, here and elsewhere, about my predictions
    regarding the breakup. Well, now they are eating their words. At
    last we can start the long delayed task of breaking up the banks, so
    that they are too small to give a hoot about.

    It was foolish all along to imagine that we could afford to
    endure the banks after what they did.

  • Comment number 13.

    Do you think that the 'market' thinks that Vince Cable's stamp will not be ultimately good for UK banks' shareholders, Mr Peston ?

    A detailed explantion of why you think so would be appreciated.

  • Comment number 14.

    Thank God for Vince Cable

    I teach Financial Regulation, and from what I can see our new Chancellor isn't qualified to give financial advice to school children.

    From what I can see of George Osbourne, he has no Financial qualifications, no business experience of any kind (no real work experience full stop actually), no experience of economics or making any decisions of a financial nature in the commercial world.

    And we appoint this man as our top Finance Minister at a time of complex financial crisis....... Laughable if it wasn't so tragic. The man is a disaster waiting to happen, and I just pray Vince Cable makes him sit in the corner and suck his thumb whilst people with real experience and qualifications take the big decisions.

  • Comment number 15.

    Well done folks - you really 'voted for change'

    http://www.youtube.com/watch?v=-FnmnuDiVno

    There are 30 million born every minute...

    I only ever had faith in Vince Cable out of all the Neo-liberal muppets - but even he has sold out for power.

    'Best interests of the country'? - more like self interest in power.

    How many cabinet seats does it take to forget all your principles anyway?

    I feel really sorry for Lib Dem voters - totally stitched up by their party.

  • Comment number 16.

    Good
    Tax cuts for all, tax cuts for entrepreneurs, tax rises for city scammers, a tight rein on the banks.
    These will all bring growth.
    Scaling back the public sector is the more difficult task. Lets have a big article on that Robert. As a practicing Duty Solicitor i know of ways to save £10s of millions on the LSC budget while raising quality. But the decision makers hearing the voice of those who do the job rather than those who seek to profit from their scheme being adopted is the problem.

  • Comment number 17.

    # 4. At 08:44am on 12 May 2010, yam yzf wrote:

    > I will say it again, the only "universal" bank that got in dire trouble
    > was RBS and that was mainly because of ego.

    I don't know how many times I have to give you the facts, yam,
    but RBS is the biggest bank in the world! The use of "only" in those
    circumstances is utterly misplaced. You talk about it as if it is
    nothing (is forgetfulness part of the banker problem?) One would
    be far too many - but you leave out:

    - Barclays, who had to go begging abroad for money.

    - The credit crunch caused by foreign gigantic houses who went belly up (remember Bear Stearns, Lehman Brothers and AIG Fannie Mae etc. etc. etc.)

    So they had their chance - break 'em up!

  • Comment number 18.

    "There'll be an independent commission to look at whether the big so-called universal banks"
    An investigation on what the former government did or did not to cause the financial crisis is due. Because I don't bite the idea that it was all American import. For one thing, we were as bad if not worse (London loophole?). When everybody could see that double digit house price inflation for years is heading us to the abyss, the government stuck to their blind measure of inflation.
    Why is has taken two years to realise that Goldman Sachs has fiddled with the rules? Why the Islandic head of the bank is accused after two years? It's about time we grab something back from Sir Fred and the likes.

  • Comment number 19.

    #2. At 08:40am on 12 May 2010, MaggieL wrote:

    "The BBC is ignoring the fact that we have a new Prime Minister. They have invented , without any evidence and with only the say so of Alastair Campbell and Labour politicians, a story that the coalition will fail. They have also decided that their job is to act as agents for the promotion of David Miliband to the post of Labour leader. How on earth do any of you expect the public to take any of you seriously when you have spent the morning so far broadcasting a series of lies, innuendoes, rumour and pure invention. I doubt everythning you say."

    I think you must be reading and watching a very different BBC to the rest of us, Maggie.

  • Comment number 20.

    I heard William Hague make a mistake on radio this morning when he said that we voted for the EU in a referendum in 1975. We didn't, the question was
    "Do you think the UK should stay in the European Community (Common Market)?"
    Quite different.

  • Comment number 21.

    #12. At 09:10am on 12 May 2010, Jacques Cartier wrote:

    "BUSINESS/BANKING - VINCE CABLE - Yeeeeas!

    There have been doubters, here and elsewhere, about my predictions
    regarding the breakup. Well, now they are eating their words."

    There are still doubts, Jacques - this is politics, after all. Your triumphalism may yet prove to be premature.

  • Comment number 22.

    16. At 09:20am on 12 May 2010, sizzler wrote:
    "Good
    Tax cuts for all, tax cuts for entrepreneurs, tax rises for city scammers, a tight rein on the banks.
    These will all bring growth.
    Scaling back the public sector is the more difficult task. Lets have a big article on that Robert. As a practicing Duty Solicitor i know of ways to save £10s of millions on the LSC budget while raising quality. But the decision makers hearing the voice of those who do the job rather than those who seek to profit from their scheme being adopted is the problem."

    Not much of a duty solicitor if you don't know the LSC ceased to exist from 1 April 2010 are we?

  • Comment number 23.

    #17

    Barclays went abroad and got money from investors when FSA changed the rules. Why didn't the others - because they were not seen as a good bet.

    RBS/Fred Goodwin's ego to make it the biggest bank are what caused it to fail. If they had not stumped up so much cash for ABN, then they would have had more available when the markets started stalling.

    Bear Stearns and Lehmans were both single market banks - they failed.
    Fannie Mae - single bank/mortgage lender that failed
    AIG - single insurance company that failed
    Northern Rock - single bank that failed
    Dunfermline - failed mortgage lender
    Bradford & Bingley - single bank failed

    etc etc

    The proportion of "single" v "universal" failures is a lot higher and so we want to increase the former? What is the old adage, do not put all your eggs in one basket?


  • Comment number 24.

    I think we are entering a new age of 'suckitandseeism' But we must give this coalition of young Turks a chance.

  • Comment number 25.

    So Vince Cable is going to bash the banks - some hope. They'll run rings round the politicians.
    I doubt if many people understand the Barclays accounts and I defy anyone to know everything that HSBC gets up to.
    Perhaps we could get back to Lloyds being something safe for widows & orphans.

    And just perhaps they might make a start on reducing the deficit. I apologise for being so optimistic.

  • Comment number 26.

    #14 "From what I can see of George Osbourne, he has no Financial qualifications, no business experience of any kind (no real work experience full stop actually), no experience of economics or making any decisions of a financial nature in the commercial world."

    Your bias is showing. The last Chancellor with real business experience was Norman Lamont, and he was an exception. Since then we have had Ken Clarke (barrister), Brown (journalist) and Darling (lawyer) none of whom had any financial qualifications.

    I must admit to being amused by the idea that an independent commission on the banks is supposed to result in change. Am I the only person who remembers Yes Minister and Yes Prime Minister (still the most accurate portrayal of govt) - independent commissions are solely to ensure that the issue is kicked into the long grass

  • Comment number 27.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 28.

    Mr Cable may well prove too raw for the free marketeers in the parliamentary Tory Party but not Mr Clegg who not long back spoke of swingeing cuts in the public sector. The £6Bn of efficiency savings will be yet another deployment of a well used euphemism for further degradation of public services.

  • Comment number 29.

    15. At 09:20am on 12 May 2010, writingsonthewall wrote:
    Well done folks - you really 'voted for change'
    http://www.youtube.com/watch?v=-FnmnuDiVno
    ----------------------

    Ha-Ha-Ha-Ha!!!!!!!!!
    Thank you, WOTW, that made me laugh! Tony Blair was a phoney and now Cameron copies the phoney, which makes him what? Copy cat phoney? Double phoney?

    It's absurd, hillarious and totally crazy to the point of actually being a sad sad situation. God help Britannia!

    But the embarrasment does not stop here, Cameron and Osborne and Boris Johnson were members of the Bullington club and here's what the this all about:
    http://www.independent.co.uk/news/uk/politics/camerons-cronies-the-bullingdon-clubs-class-of-87-436192.html

  • Comment number 30.

    This coalition provides a unique opportunity for the Tories to ditch manifesto commitments without any political fallout. They can raise taxes by increasing CGT, implementing the 1% NIC charge and abandon promises on marriage and IHT and blame it on concessions made to the Lib Dems.

  • Comment number 31.

    There is at least some good news here. The increase in the basic rate income tax threshold will help a lot of people. Of course the one group of people it won't help is those on really low incomes who were already at or below the existing threshold - we need some system of Citizen's Income or properly targeted tax credits to help those (not the mess of a tax credit system which the previous Government introduced).

    However for a start, reducing tax on many low paid workers is fine - the main question is where does the money come from to pay for this? The changes to Capital Gains Tax are good - it was always morally (and economically) wrong for earned income to be taxed more than unearned income. But more money must be raised from the well-off to pay for the tax threshold change and to reduce the deficit (especially if we are to be stuck with paying a fortune for Trident).

    We really need to see the closing of the tax loopholes used by the rich (tax havens, pension schemes, etc) - was anything agreed on those?

  • Comment number 32.

    "Update, 08:42: An encouraging sign for the new government is that the rise in the price of government bonds that we saw late yesterday has continued this morning. Nothing dramatic - but it shows that investors have some confidence in the ability of the coalition to make in-roads into the record public-sector deficit."

    ..but Robert - this is because the markets are foolish and actually think a coalition are going to be able to achieve what Thatchers (vast?) majority couldn't.

    The proof of the pudding will be in the eating.

  • Comment number 33.

    7. At 08:47am on 12 May 2010, Toldyouitwould wrote:

    "Ia there any doubt in the minds of anyone who is not a banker that they should separate 'Investment' snd 'Retail' banking?"

    Yes - the minds of politicians....

  • Comment number 34.

    #15 WOTW

    tried arguing with you yesterday but brilliant link

    must view stuff

  • Comment number 35.

    #17

    Jacques, I'm aware from reading your posts that Banks aren't exactly your favourite organisations but in this instance I'm afraid Yam is correct:

    None of the organisations you mention; Bear, Leham Bros, Fannie Mae or AIG were universal Banks; they were all "narrow" businesses and did not take customer deposits. All of them fell apart for ultimately the same reason; they were undercapitalised in relation to the scale of risk their enormous balance sheets expsoed them to; especially (but not exclusively) the risks associateed with the sub-prime mortgage market; They made assumptions that volatilities and spreads associated attached to the illiquid securities associated with this market would be similar to those associated with dealing established liquid products. Lo and behold they weren't and this was a horrendously costly mistake(In addition US legislation encouraged these firms to hold CD0s as part of their Basle 2 Capital posrtfolio of assest ...but that's another story and one which congress will be anxious to avoid discussing..)

    In the UK, of the major banks that went bust HBOS, Northern Rock, Bradford and Bingley were conventional "retail banks". In being retail banks they engage in the very riskiest of all aspects of banking; long-term secured and unsecured lending to bsuinesses and individuals. Lending money is, in fact, far riskier than proprietary trading in liquid markets as when trsading you're in control of your position and, in liquid markets, can exit when you want if you're position is losing you money. When lending you are relying on the competence and integrity of the people you have lent to (and their successors)over a generational timescale to return the cash you've sent out of the door...

    RBS went bust largely because its managment was disastrously incompetent; it didn't understand certain aspects of its business, in particular the CDO origination business in Stamford Conn which lost it stacks of money, its balance sheet (as you correctly point out) got massively too big to manage properly, and then what truly tipped the boat over was buying the only bank in Europe with a worse loan book than HBoS for a "top of the market" price, using up all the banks precious cash (which should have been retianed to bolster teir 1 capital to deal with up-coming impairments) just when the financial industry was imploding. (Six months later RBS could have bought the entire US Investment Banking Industry and kept plenty of change for price it paid for ABN)....this was, as Yam correctly says, driven by the egos of the senior managers of the bank..

    I'm sorry JC but the answers to re-organising the banking system and ensuring tax-payers are never again left on the hook for the exposures banks take on are considerably more complex than simply carving bits off them. Where you are correct is in pointing out the still enormous size of RBS' balance sheet despite the Investment Banks part (GBM) reducing it's balance sheet by 30% in just over a year. It's still ridiculously big...but would expand further abnd produce lower returns on RWAs if politicians insist on it meeting arbritary "lending targets"...the whole situation is far from easy...

    As for Barclays raising new capital from shareholders during times of duress, well that's what all plcs do...they have to accept haircuts when they do it as they are forced sellers of equity...it's hardly begging though...

    BR, Ancient fullback

  • Comment number 36.

    6. At 08:46am on 12 May 2010, Averagejoe wrote:

    "It’s all just rearranging the deck chairs on the titanic. The price of gold hit a new high yesterday, obviously not news worthy then. The system itself is crumbling, and those with money are cashing it in to buy gold before the inevitable crash in our FIAT currencies arrives. "

    ....and that's the truth - for all the banking apologists lies and the politicans navel gazing - the price of gold is the one consistent truth in all of this.

    Expect it to keep rising and undermining the political lies of "recovery and stability".

    Stable countries do not rush to put their investments in Gold - it's a fact.

  • Comment number 37.

    23. At 10:09am on 12 May 2010, yam yzf wrote:

    "RBS/Fred Goodwin's ego to make it the biggest bank are what caused it to fail. If they had not stumped up so much cash for ABN, then they would have had more available when the markets started stalling."

    Still arguing baout who sits at the captains table whilst the ship is sinking I see...

  • Comment number 38.

    THE CONDEM PACT

    As the people of Scotland never voted in sufficient number for the protectors of Scotland the SNP.

    We are going to be ruled by the con / dem pact.

    The problem is that this dis functional political alliance will be in effective in arousing or stimulating the Scottish electorate who voted to overwhelmingly to stop Tory rule in Scotland.

    The effectiveness of this condemed pact could be increased if they appointed a Liberal Democrat as the Secretary of State for Scotland.

    Then the people of Scotland would have the opportunity of forcing the Secretary of State for Scotland to reverse the secret order that Scottish Liberal Democrats in their seedy relationship with Labour's Henry McLeish that was put through in 1999.

    This secret order made 6,000 square miles of Scotland's Sea English.

    So now when us Scot's play golf at St Andrew's and look 80 miles out to sea. There it is English Sea !

    Since 1999 15% of the oil and gas revenues have been raped from the Scottish sector of the North Sea. Which in 2008 took £2.5 Billion out of the Scottish Economy.

    This is more than the credit crunch cuts proposed for Scotland, which have been estimated by senior economist in the civil service as £35 Billion over the next 15 years.

    Scotland's lost revenues - http://www.oilofscotland.org/scotlands_news.asp#budget_cuts

    Scotland's lost sea - The http://www.oilofscotland.org/scottish_politics.html#Scotlands_marine_boundries

  • Comment number 39.

    "Top money man and son of top City Banker, will give they buddys a hard time???? More Regs and laws? dont' hold your breath, They will scrap The F.S.A. for a start ? they may bring in a very soft, do as you please replacement.

  • Comment number 40.

    Re Osborne's lack of real world or financial experience: The last Chancellor to have such experience was Norman Lamont. Google that name plus "Exchange Rate Mechanism" and "15% interest rates" and you will discover the mess he created - for those who don't remember, he was a Tory Chancellor. Lots of house owners lost their properties when "Badger Lamont" was in charge of the kitty.

  • Comment number 41.

    Is it true Lib Dems are starting to see members leave their party in large numbers. I guess these reforms they have proposed will need to actually be enacted rather than committed to before they win them back.

    So does a bank levy actually balance the books with tax cuts? I guess my thinking is they should pay down the deficit with tax rises and spending cuts, or else (by my personal and possibley suspect reckoning) we are going to need at least an additional £7bn in cuts this year (making £13bn not £6bn) and next, and next to keep things as they are (Lab defict reduction wise if you accept the Treasury growth figures). Now that does not strike me as inspirational for the market. What was the outcome on corporation tax and investment allowances?

  • Comment number 42.

    People questioning differences between RBS and Barclays, why one needed govt money and the other did not, I am sure we will eventually/ one day get a fully crytalised balance sheet.

  • Comment number 43.

    Vince Cable as Minister for Business and Banking...hmmm. Is that not like making the Child Catcher out of Chitty Chitty Bang Bang the Minister for Children?

  • Comment number 44.

    Here we go folks....

    http://news.bbc.co.uk/1/hi/business/10109275.stm

    "ose Luis Rodriguez Zapatero announced a 5% cut to public sector salaries, as well as reductions to pensions and regional government funding."

    Which produces:

    "At the weekend Spain said it wanted to drastically reduce its budget deficit, which currently stands at 11% of GDP.
    The aim of the new package is to trim this deficit to 6% of GDP in 2011."

    ...and we stand at 12.8% of GDP as a deficit (that's bigger than Spain).

    If you 'rough guess' the approach then this is the least we can expect to help reduce our deficit.

    5% cut might sound very reaasonable to the bloodthirsty tabloid fuelled private sector slaves - but considering inflation is running (officially at 3.5%) but probably much higher, this makes a 5% cut into a 8.5% cut (or did you think the inflationary policies of Government were 'free')

    In addition to the cuts, redundant public sector workers don't buy things nor do they boost economic demand. Striking workers do not 'shop till they drop' - so who is going to provide the demand to bring the Economy out of recession?

    8.5% cut in public sector pay - simply won't be accepted. Prepare to take out your own bins, replace your own broken street lights, bury your own dead and tidy up your own parks folks because this party is just about to get started.

    May 22nd - a coalition of the left (it's not just neo-liberals who can agree you know) is preparing battle plans for the upcoming war.

    The removal of Gordon Brown simply makes it much simpler - he was confusing the left with his 'nu-liberalism', but the actions of Liberal Democrat politicans has thrust many more people leftwards and clarified everyone's position.

  • Comment number 45.

    Personally I see a lot of the market problems currently stem from the inability of the Euro to work across disparate countries and their hugely divergent economies. Remember when we were forced out of the ERM? Suddenly, interest rates were able to drop from 15.5% to a more sustainable level. The same would be true if something similar were to be forced on the Greeks.
    I'd like to see the Greeks given back their Drachma, which would be allowed to float and find its own level. The Euro subsidies would vanish as the IMF took over, and all the EBU might feel inclined to pay would be for the inherent costs of changing back.
    There are rules that need to be followed to belong to a "club" - in this case the rules were clearly laid down in terms of spending and borrowing as a proportion of GDP, and they were clearly and routinely broken. What happens if you break the rules? You get asked to leave. The same will likely be true for Portugal and Spain. Ireland, bless them, have taken drastic steps to fall back into compliance and should be an example to our new government. Their pain now should leave them in a much stronger position in 2 to 3 years, and the same will be true for us in 4 to 5 years if we go some way towards following their example.

  • Comment number 46.

    wotw, gold's been bid in euros (and sterling) for weeks now as central banks (but not BoE) who had diversified away from holding usd assets by purchasing euro-denominated securities run to the exit...

  • Comment number 47.

    29. At 10:27am on 12 May 2010, plamski wrote:

    "But the embarrasment does not stop here, Cameron and Osborne and Boris Johnson were members of the Bullington club and here's what the this all about:
    http://www.independent.co.uk/news/uk/politics/camerons-cronies-the-bullingdon-clubs-class-of-87-436192.html"

    The very fact that Boris Johnson, Osbourne and Cameron were all able to lift themselves to the highest offices in the land is a sad endictment of our 'reverse meritocracy' - where idiots and bufoons prosper.

    This morning I heard Nick Robinson of the BBC describe the current set of cabinet jockeys as 'intelligent men' - well all I can say Nick is that you must be hanging round with some real dumb dumb's at the Beeb if you think any of the cabinet are 'intelligent'.

    I used to think people who worked in finance were 'intelligent' - until I worked with them - whereupon I discovered how dense they really are.

    Maybe I am have a 'super brain' or something - but more likely is that the real intelligent people of this country don't make lots of noise about 'how intelligent they are' - or don't have hangers on prepared to do it for them.

    My grandmother always said - 'empty kettles make the most noise' - and in our society we promote those who make the most noise to the pinnicale of achievement.

    This really is the king with no clothes - let's see how the 'intelligenta' manage to steer us through the collapse of Capitalism - my bet is they won't be able to do it and their only safety will be in 'blaming the last guy' - which I noticed William Hague has already started to do....

  • Comment number 48.

    38. At 11:15am on 12 May 2010, ScottishIndependence

    I do fear for the Scottish and Welsh now - for the Tories will follow the Thatcherite policy of "They don't vote for us so we can punish them as much as we like".

    It makes perfect 'self interested' sense to the Tories - rape the border regions and funnel money into the Tory heartlands.

  • Comment number 49.

    Ancientfullback writes: "RBS failed largely because its management was disastrously incompetent".

    What part of this was the fault of Gordon Brown or Alastair Darling?
    This is a genuine question from someone who doesn't understand what the heck has been going on.

  • Comment number 50.

    There is a split on nuclear - Tories are keener than LibDems. But the Conservative manifesto is explicit it only backs nuclear power if it can be built without subsidy - so Chris Huhne will have no problem ensuring there is no subsidy.

    More interesting is the hidden subsidies we give the industry. Why should tax payers pay for the massive security costs needed to safeguard nuclear power stations, when they simply are not required for the alternatives? How about other tax breaks that advantage the industry - guarantees over dealing with waste etc.

    Chris Huhne needs to assess these and make sure the Tory manifesto pledge of no subsidy means all public help, not just obvious cash handouts.

  • Comment number 51.

    Its all quite amusing. This pointless tinkering and propping up. However, some of us have managed to step back and look at the monetary system as a whole (unlike our politicians), and it’s clear that the system is flawed and failing. Patching it up will not fix it. Does it really come as a surprise that a monetary system designed hundreds of years ago is no longer fit for purpose in a modern age. I’d be surprised if it was. In the 21st century we need a system that reflects modern needs. This is a positive opportunity to create something new and better which provides a better future for all, something that is sustainable environmentally, socially and economically. Resisting change is pointless and counter productive, we need to support it and strive for something much better. The longer we delay starting this process, and focussing minds, the more rocky the transition will be. I’m ready to make a start, are you?

  • Comment number 52.

    Is this evidence to back up my claim?

    "Eton may not be the most expensive school in Britain, and it certainly does not get the best exam results. But this one boys' secondary has produced 18 prime ministers of Great Britain, one of Northern Ireland, and also educated the prime minister of Thailand."

    If you cannot see the class divide based on this evidence then you're simply not looking properly. You leader is not chosen on his ability - but on his connections. Which is coincidently why they are all happy to persist with the flawed system of Capitalism.

    Anyone with any intelligence would identify this as the root of our problems (it's the Economy stupid, never was more poignant) and begin plans to tackle it. Never has a politican been brave enough to admit this - it's like the estate agent telling you the house has subsidence 3 months after he persuaded you it 'was a steal'.

    The electorate - like the homeowner - would rather live in fantasy than face up to the truth - and the estate agent isn't exactly going to force the matter home, but recommend plasterers and painters to cover up the damage instead.

    http://news.bbc.co.uk/1/hi/uk_politics/election_2010/8622933.stm

  • Comment number 53.

    Well I reckon between the three of them (Mr Cameron, Mr Clegg & Mr King), they will now work out actually how much money (over and above tax receipts) they are going to need to keep the Government funded till 5th April 2011.

    And having so calculated it, Mr King will re-start quantitative easing to enable such to occur.

    And the funny thing is, I don’t reckon it would have made any real difference who Mr King was negotiating with politically, because the problem’s a mathematical one in my book.

    So I still reckon ‘more QE’ is what they’ll do.

    Because as far as I can see, without QE, you have the austerity issue upon you very quickly indeed.

    Now I wouldn’t say the Greeks have set a precedent of what happens when you push the austerity button, but they’re certainly an example of what can happen.

    So the interesting question for any European nation is:

    Does austerity to avoid default; ultimately result in default in any event?

  • Comment number 54.

    Anyone seen the Film Day after Tomorrow? Just in case here’s the plot.

    Scientist: there’s a big “environmental” storm coming we need to take action now!
    Politician: fingers in ears, la la la la la……
    Scientist: if we don’t act now to change our ways we are facing big problems!
    Politician: la la la la…. Sounds like hard work and very expensive to implement
    Scientist: If we don’t act now the cost could be even greater!
    Politician: la la la la………
    “environmental” storm arrives, social chaos, people perish etc etc
    Politician: How did this happen?
    Scientist: well we tried to tell you but you just didn’t listen!
    Queue broadcast to the nation; “We made a blunder big time, we failed to listen, we should have made changes before it was too late. Its time to make a change lets try and solve this thing together……….”
    Mmmmmmmmmmm. Lesson for the day, a classic case of burying head in sand. Now replace “environment” with “economic”.

  • Comment number 55.

    Robert you do well to use the inverted commas:

    " "entrepreneurial" business investment"

    In my experience RDAs encourage "entrepreneurial" activity and the financiers jump in with both feet. They get tax losses and just plain grant money. The tax payers end up bankrolling nonsense business models and ideas.

    There is now no such thing as an entrepreneur standing or falling on his/her two feet.
    The vagaries of the tax system and creative accounting ensure serial entrepreneurs an easy life. Together with their financiers.

    So nothing changes then. More loopholes to exploit in fact.

  • Comment number 56.

    35. At 10:42am on 12 May 2010, ancientfullback

    Stop arguing about 'which type of sneeze you have' and find out what 'gives you the cold'.

    Ask yourself why do (rational) banks start making less and less rational decisions as the boom progresses and lending to riskier and riskier customers?

    Take a walk down the Adam Smith's "diminishing profit" street and you will see that banks continue to act 'rationally' - but without realising the unintended consequences of their actions.

    Banks (retail or not) don't want to go bust, but they have to take bigger and bigger risks in order to maintain market share and profit. They can maintain market share by increasing in size (too big to fail) and profit by making more and more rash lending decisions.

    The consequences are there for all to see - it's no coincidence that 6x lending was blamed for the 90's recession - and it's no coincidence that it caused this one (along with the new concept of securitised mortgages).

    In fact if you go back through history nearly every single recession (and depression) has been created by banks who started 'lending irrationally'. Right back to 1929 where banks were lending people money to buy stocks in the belief they would always rise - nowadays they lend to people to buy houses with the same belief.

    ...which is why all the specifics of this crisis are merely clouding the reality. Who cares what the symptoms are or how they differ - it's the cause which is important.

    A cause laid out by Marx, but ignored by the majority of people - especially modern day Economists.

    Still, if you believe that the cause is the banks or personalities of the banks themselves - well the solution is simple - regulation.....now remind us why that didn't work last time would you?

    History shoots a hole in your argument

  • Comment number 57.

    Robert Peston would be correct about the 'reverse take over analogy' if the LibDems HAD taken over all the top jobs.

  • Comment number 58.

    "44. At 11:39am on 12 May 2010, writingsonthewall wrote:
    Here we go folks....

    http://news.bbc.co.uk/1/hi/business/10109275.stm

    "ose Luis Rodriguez Zapatero announced a 5% cut to public sector salaries, as well as reductions to pensions and regional government funding."

    Which produces:

    "At the weekend Spain said it wanted to drastically reduce its budget deficit, which currently stands at 11% of GDP.
    The aim of the new package is to trim this deficit to 6% of GDP in 2011."

    ...and we stand at 12.8% of GDP as a deficit (that's bigger than Spain)."

    If you think the Spanish might kick up a fuss at that, I cant wait to see the response of the French when their cuts are announced. I wouldn't bothering planning a holiday to europe this summer. Might be a little too..... hot.

  • Comment number 59.

    ...and here we have the first Economic mistake of the coalition....

    http://www.ft.com/cms/s/0/acfee9d4-5db6-11df-b4fc-00144feab49a.html

    By raising the CGT to 40% from 18% you will encourage all those who hold taxable assets, but who aren't high earners - to sell off.

    Meanwhile the new 50% income tax rate payers will retain their assets as this represents a reduction in their tax bill when they come to sell.

    Therefore we have a paring of asset owners - now only the uber-rich will hold assets which attract CGT - the serfs will no longer be part of the 'asset owning class' - all those BTL landlords' dreams dashed.

    As assets will rise in value in the inflationary environment we're about to go into (if we're not already in it) - then this represents the biggest move to further uneven the wealth distibution in this country.

    ...and I thought they were Liberals? Under Labour you got tax and spend, tax and spend, now we get tax and tax, tax and tax.

    ...don't forget now that this rise is to pay back the debts run up by the banks - and who do you think will be hoovering up all these cut priced assets as the lower end of the asset owning class seek to dump them before they are taxed at 40%? - that's right, the banks.

    Oh and the dropping of the mansion tax? - well I'm sooooo glad that the Tory supporting mansion owners won't have to fork out for their property - it means they will have more cash with which to buy elections.

  • Comment number 60.

    To Writingsonthewall - re post #44

    How typical of the socialist - they believe they have a God given right to rule, yet the voice of the people has spoken, and we have what we have because of that voice. This is called democracy, for better or worse. Perhaps you would prefer a dictatorship?
    The fact remains that the country is beyond bust, thanks to 13 years of profligacy by labour, and now the day of reckoning is coming. And how do you propose to help? By striking, by threatening "war" because things are not to your liking.
    Throw your toys out of the pram by all means, but don't tip the pram over for the rest of us

  • Comment number 61.

    ...and speaking of pay cuts.....

    "The report comes across as still pretty dovish, even though the Bank of England has raised its near-term consumer price inflation forecast compared to February and now expects inflation to remain above the 2.0 percent target level through 2010."

    We're all going to be taking one this year then - even if you have already agreed to one at work!

    You didn't think QE and record low interest rates 'cost nothing' now did you?

    Ever felt like a mug?

    ...and here is the reason....

    "The Bank of England's Inflation Report suggests that interest rates will not be moving up anytime soon. They are anticipating a decent pick-up in growth, "but the pace of expansion is likely to be tempered by the need for fiscal consolidation and for further balance sheet repair by financial institutions." That said their growth forecasts look remarkably high - between 3 and 4 percent Y-o-Y in 2011&2012, which is well above consensus (2.3 percent for 2011 and ING's own house forecast of 1.5 percent for 2011 and 2012)."

    Pay cuts all round to save banks - isn't this getting through anymore? I know their techniques of fleecing us all are becoming more and more subtle - but really folks, you must see that we're all being taken for a ride - which coincidently we're also paying for.

  • Comment number 62.

    # 21. At 10:06am on 12 May 2010, rbs_temp wrote:

    >> #12. At 09:10am on 12 May 2010, Jacques Cartier wrote:

    >> "BUSINESS/BANKING - VINCE CABLE - Yeeeeas!

    > There are still doubts, Jacques - this is politics, after all. Your
    > triumphalism may yet prove to be premature.

    Just wait 'til Doctor Doom rips into those banks! Do you really think
    Little Lord Fauntleroy has any chance of keeping him on a tight reign?
    His government just needs a tug to pull it down - so he'll have to stand
    in line with the bankers while Doctor Doom does his surgery! Yea Ha!

  • Comment number 63.

    I am disgusted that a party which came third can enforce their loony tax policies on the country.

    Vince Cable is unable to distinguish between capital and loans (as proven by his Northern Rock 100 billion black hole comments) and is utterly unqualified to pass judgement on business.

  • Comment number 64.

    #44. At 11:39am on 12 May 2010, writingsonthewall wrote:

    "5% cut might sound very reaasonable to the bloodthirsty tabloid fuelled private sector slaves - but considering inflation is running (officially at 3.5%) but probably much higher, this makes a 5% cut into a 8.5% cut (or did you think the inflationary policies of Government were 'free')"


    One good thing I suppose is when I go on strike I won't lose so much :)

    In a macabre sort of way I'm looking forward to this fight, my spleen needs venting.

  • Comment number 65.

    the problem has always been with pr,that when a party is elected, the argument gets lost in the uproar of cheers and tribulations.the lib dems are no exception. for the first time i voted lib dem thinking there might be a hung parliament,giving them have some leverage to get pr through.what do we find , a commision, with the tories involved you know that will be alot of friends and etonians telling us it's a bad idea.if the rage within me had a voice it would shout, sell out. we've been had hook line and sinker. for me the lib-dems have been thrown to the realms of history. as soon as the tory monolith has picked the skin from this body, it will throw this pressure group where it belongs, with the arguments, there is weapons of mass destruction in iraq, we need change and the old favourite, vote for us and we'll give you pr. disgrace!!!!! no lets see the old tories from the 80s rise to the top.

  • Comment number 66.

    "BA, Virgin and the airlines may be in for a bit of a shock, because the Lib Dem policy of taxing planes rather than passengers has been adopted, as one of the coalition's green policies."

    taxing planes rather than passangers was introduced as a labour policy. As much as i'm pleased that someone is standing up to Richard Branson getting effective subsidies (again), which is the main issue for me, i can't help thinking that Stelio's support seems to be rewarded quickly



  • Comment number 67.

    #44 writingsonthewall. It appears you are in error.

    As Zapatero is only cutting the salaries of people employed in Spain it seems reasonable to assume that any comparison should be with Spanish inflation, and that is oficially running at 1.416%. See below

    http://www.global-rates.com/economic-indicators/inflation/consumer-prices/cpi/spain.aspx

    This may have something to do with the fact that Spain is in a deflationary collapse. A collapse from which no exit is possible irrespective of how many people may protest, or no matter how diligently the works of Marx may be studied.

  • Comment number 68.

    47. At 11:58am on 12 May 2010, writingsonthewall wrote:
    My grandmother always said - 'empty kettles make the most noise' - and in our society we promote those who make the most noise to the pinnicale of achievement.
    -------------

    Which reminds me that you haven't given us your opinion on Resource Based Economy. Come on, WOTW, lots of people read you and respect your opinion. SHARE IT!

  • Comment number 69.

    Who will be the first to address Clegg as "Morgan"?

    He has been well and truly "Tsvangiraied"
    But doesn't know it yet!

  • Comment number 70.

    Just what is up, so we have a Hung Parliament, is it not time that parliament and its Members where made to take the adult role and manage the Country for what is in the National interest first and foremost with Party Politics comming last in the greater debate.

    THe nation has spoken and said quite clearly that

    1. It wanted a new Prime Minister c/w an Indication that it should be lead by David Cameron / The Tories , However,

    2 It did not give any one party the power to rule unchecked as we are currently suffering from that ideal and bad decision making.It simply said that the Tories would be the Pivetal Party around which all would respond.

    3.I cannot see the point of electoral reform in respect of the current system of first passed the Post how can you juggle or massage votes to reverse the voters choices, thats like saying 3rd is a greater number that 1 so it should win.

    4.It is true that we all have different priorities , some small issues, others big issues, however, the fundemental principles of Government are the Interests of the people of the United Kingdom , the National Interest,
    they have to override all else, therefore, when a crucial interest is up for the vote it will be passed or lost on that very voted, however, simply voting against it because your particular Party Leader says you should and not in the National interest is holding the Countries intersts to ransome.

    I did not vote for a 3 Man Government I voted for a 500 plus Government with each vote being an individual opinion

  • Comment number 71.

    # 49.
    "What part of this was the fault of Gordon Brown or Alastair Darling?
    This is a genuine question from someone who doesn't understand what the heck has been going on."

    Like most everyone else here, you've never understood what's going on and you never will. Those who have the power to decide what "goes on" will always make sure of that.

    Just as the financiers developed complex math even they didn't understand to enable them to rob their customers with impunity.

    Just as plain and simple "Proportional Representation" needs to be transformed into something complex and opaque enough to ensure that the powerful remain so.

    As soon as something shows signs of being understood by joe, it'll be changed. Take the kaleidoscopic structure of the educational system for instance. Forever churning away to maximise user uncertainty and spawn endless lucrative activity for the grey suited ones.

  • Comment number 72.

    # 23. At 10:09am on 12 May 2010, yam yzf wrote:

    > Bear Stearns and Lehmans were both single market banks - they failed.
    > Fannie Mae - single bank/mortgage lender that failed.
    > AIG - single insurance company that failed
    > Northern Rock - single bank that failed
    > Dunfermline - failed mortgage lender
    > Bradford & Bingley - single bank failed

    It is not "single market bank" that unites all these failures. It is "fragile business model". And many, many financial units had fragile business models. And will have again, there can be no doubt about that.

    But that's none of my business – I only care about my well-being. So I must eliminate the risk of any bank dragging me down with them - I don't care two hoots if they loose all _their_ money, but I shall not loose mine (because this is a democracy, and we choose the rules).

    So, how? Break them up and make them small. Lower the coupling between them. Distribute them all around, stop them from getting involved with each other, cap their greed-bonuses, give them to the public to manage, strip their wealth and power, make them into utilities, give them simple inputs and outputs , force them to use white-lists of safe products, lower their wages, make it an even lower esteem occupation (impossible some might say), prosecute the perps, hang the debt around Sir Greedie's neck, and (basically) break 'em up!

  • Comment number 73.

    # 38. At 11:15am on 12 May 2010, ScottishIndependence

    > I do fear for the Scottish and Welsh now - for the Tories will
    > follow the Thatcherite policy of "They don't vote for us so we can
    > punish them as much as we like".

    Here in Wales, we are discussing leaving the London debt with England
    and joining the Euro, debt-free!

  • Comment number 74.

    53. At 12:41pm on 12 May 2010, Dempster wrote:

    "Does austerity to avoid default; ultimately result in default in any event? "

    Well our 'test bed' is Ireland - they were applauded by markets when they announced and enacted 'savage cuts' - as a result they are not looking like they will come out of recession this year (and doesn't that mean they're 'technically' in depression?)

    Notably the markets have left them out of the PIIGS roasting (ho ho) - and they are rarely mentioned as being in the club.

    I suspect this is because they want us all to believe this is the way forward, and therefore 'accept our austerity' - unlike Greece who vehemently oppose it.

    I can't see Ireland pulling themselves out of this mire anytime soon - they have just had a second round of bank bailouts and it appears the cuts have done nothing except appease the markets and sustain depression.

    Lets not forget this experience when the ConDem alliance suggest this as the correct solution.

  • Comment number 75.

    ....another method of fleecing....

    http://news.bbc.co.uk/1/hi/business/10110698.stm

    The overnight LIBOR is around 0.6% - and the average o/d rate is 14.22%

    Now someone tell me where the banks are making their 'profits'.

    They may as well stand in street corners with hoods and bats and rob you properly - the result will be the same - but at least you'll be aware of the daylight robbery!

  • Comment number 76.

    Time will tell.
    Hopefully, they will not let the powermad moneymen of wallstreet set their agenda.
    It is amusing how the Market ideologues like to confuse a stack of Dollar Bills with real power.
    But then a bond market crisis abroad helps to deflect attention from their sins at home, and if they turn a billion or two in profit, well yeehaa !
    But this often happens, when Men have wealth, they next want power.
    In reality, political and economic power in Europe does not lie with Merchant Banks or Hedge Funds, who can be swept aside with the flourish of a well inked legislative pen.
    Antitrust Laws anyone ?
    Power, does and always will reside in People.
    How they choose to organise themselves, how they choose to live, and how they choose to act.
    History has many good examples.
    For example, how many Bankers did Stalin need ?
    Money is just pieces of paper. The Value and nature of such paper is entirely dependant on the good will of the People whose Government issues it.
    Hoarding pieces of paper and calling it power is just foolish.
    Power is most definitely something else.
    So the Market idealogues who wish to flex their so called muscle, in a Bond Cold War, to enforce the Economic Policies they favour in Europe, should watch out.
    They may well get change, but as History shows, all too often it is not the changes that are expected, nor the ones that are desired, by anyone.

  • Comment number 77.

    64. At 1:31pm on 12 May 2010, NorthSeaHalibut wrote:

    "One good thing I suppose is when I go on strike I won't lose so much :)"

    Looking on the brightside - very good.

    "In a macabre sort of way I'm looking forward to this fight, my spleen needs venting. "

    I've always believed the US and UK are far more volatile than the Europeans - I mean the French vent their collective anger at any opportunity - but we bottle it all up for years until.....pop.

  • Comment number 78.

    I think, more QE would be a disaster as a solution for the Deficit. The inflationary effect would be hidden for a few years sure but we would end up in 1970/80/early 90's territory, which combined with planned austerity will cause the same social unrest.

    Think I might look at some long-term fixed rate mortgages!

  • Comment number 79.

    67. At 1:47pm on 12 May 2010, armagediontimes wrote:

    "#44 writingsonthewall. It appears you are in error."

    How dare you sir!

    "As Zapatero is only cutting the salaries of people employed in Spain it seems reasonable to assume that any comparison should be with Spanish inflation, and that is oficially running at 1.416%. See below"

    I think you might have mis-understood, I was trying to compare 'the level of cuts we can expect here' - and then adding in our rampant inflation rate.
    Of course there are many factors at play - for example the size of the public sector here and there (would a 5% cut here produce more revenue, would a 5% cut here cause more disruption)

    "This may have something to do with the fact that Spain is in a deflationary collapse. A collapse from which no exit is possible irrespective of how many people may protest, or no matter how diligently the works of Marx may be studied."

    The way I see it, the 'balance' of the world Economy is very sensitive at the moment, boosting inflation in one country or region is creating deflation in others - and vice versa. Normally these shifts are slow and slight - but these days the scales are being slammed hard by all parties - the result is stuff is flying everywhere and we lurch from one panic to the next.

  • Comment number 80.

    Spain cutting expenditure to cut the deficit from 11% to 6% in 2011 will mean that it is chasing GDP and tax revenues down the plug-hole.

    I fully expect the UK to attempt the same, but on the basis of a much less generous social security system, which tends to point to breaking point coming before we hit 20% unemployment.

    WOTW's comparison using UK inflation rates does not invalidate his analysis.

  • Comment number 81.

    # 56 WOTW

    I don't think anyone is arguing, least of all myself, that banks failed for taking on too little risk. I think we'd both agree (and I work in the financial sector) that Banks, in the period 2001-2007 especially, took on too much risk and undervalued it atrociously. The largest part of this risk which both you and I allude to in our posts was in fact either direct participation in, and/or securitisation of "boring retail banking products"; risks like providing mortgages, commercial lending or unsecured personal loans.

    It is also true that retail banks got involved in some leveraged financing that should have been the preserve of Investment Banks only, however, this, while contributing to asset price acceleration was a drop in the ocean compared to mortgage market lending.

    My point was that some politicians, and it would appear, plenty of posters to this site don't appreciate this, and, not understanding what Investment Banks actually do (and you only had to watch Congress' excruciatingly embarassing questioning of Goldman Sachs to appreciate the extent of this lack of understanding), seem to believe that a Glass-Steagal type seperation bank activities would somehow, magically make these risks disappear. They won't.


    Leverage expansions (the result of lending) are necessary in any economy, otherwise leveraged investment is not possible and you can't grow. However, this leverage expansion, like that in the 1920s (and to a lesser degree the 1980s)got out of hand. Prudenital management of these expansions has to be better managed in future, no-one doubts that, but what I'm saying is the solutions are more sophisticated than cutting viable institutions into pieces.

    I would suggest as starting points:

    Central Banks getting back proper macro-prudential responsibilities and enforcing capital ratios with real sanctions to punish, through forced asset sales, licence suspensions etc those banks who over-gear.

    Internationally agreed accounting and reporting standards for Banks, including the publishing by all banks of quarterly financial statement which include average capital ratios across each quarter.

    Governments setting Central Banks max and min targets, published in the public domain, as they do with inflation, for money supply acceleration. (This will test the treasury's ability)

    Internationally agreed "special administration" procedures so that banks that run into trouble can be liquidated sensibly over time at little or no expense to the tax-payer. Bondholders and equity holders of such institutions to get wiped out under this regime, the only way Banks' management are going to get properly scrutinised by their owners and creditors as to their understanding of the institutions they run.


    These are just a starting point obviously...

    #49 Philip

    I don't think anyone can make an argument that GB or AD were directly responsible for the demise of RBS however;

    GB, like politicians elsewhere was absolutely complicit in the hugely overdone expansion of leverage between 2001 and 2007 of which RBS was at the centre.

    Politicians generally like credit bubbles like this one as:

    1. They're inflationary and so indirectly appear to reduce the cost of the debts the politicians run up.
    2. The new money supply feeds through to larger cash profits being reported by banks and other companies, and higher salaries and consumption all of which are taxable. This provides politicians with ever bigger pots of (other people's) money to throw at whatever pet project/ interest group they're particularly fond of.
    3. The illusion of prosperity. While leverage expansions do produce economic growth they create the illusion that prosperity is increasing faster than it really is. This is because the extension of credit enables people to consume,and hence feel more prosperous, without actually becoming any more productive...no-one reading this will need any further clues as to why this effect is massively popular with incumbent governments...!

    All IMHO of course,

    Ancient Fullback

  • Comment number 82.

    1438: Mr Clegg says both men have "a common purpose" - to give power back to people and give people more opportunity - and that will make the coalition work.

    That phrase has a familiar ring. Now where have I heard that before...

  • Comment number 83.

    60. At 1:25pm on 12 May 2010, sunk_optimism

    Are you trying to suggest that the current global financial problems are caused by Socialism? Do you actually know what that term means?

    WOTW has opposed the previous administration almost as strongly as he is likely to oppose the next. Do you believe the previous administration to have been more Socialist than the next one is likely to be?

  • Comment number 84.

    The system does work, its just insolvent because of rising commodity costs, which underpin most of our activities. Banks are meant to take these factors into account and allocate capital efficiently to ensure profitable returns. For example, a business plan should have sustainability in mind, with forecast rises in business costs due to macrotrends (Emerging market demand for commodities) taken into account at the local level. This element has not been there, and as such, capital has been allocated without regard for the risk of increased costs of operation for business and government.

    Answer? eliminate the increased cost of business operations incurred by macro movements, by innovation or increased efficiency at the micro level. More agility, lighter weight, purer modes of operation. The answers are in front of us, we need to take the lenses off to see things from another view. The economy should force itself to innovate through decreased credit flow. Leave it be i say, and it will right itself.

  • Comment number 85.

    On pensions the Condems have apparently agreed to abolish compulsory annuity purchase at age 75.

    That was abolished fours ago.

    Next announcement: abolition of the death penalty, slavery and national service.

  • Comment number 86.

    # 35. At 10:42am on 12 May 2010, ancientfullback wrote:

    > in this instance I'm afraid Yam is correct:

    That's not hard - even a stopped clock is right twice a day.
    But he's wrong about breaking up the banks.

  • Comment number 87.

    68. At 1:49pm on 12 May 2010, plamski wrote:

    "Which reminds me that you haven't given us your opinion on Resource Based Economy. Come on, WOTW, lots of people read you and respect your opinion. SHARE IT!"

    OK, OK, I've managed to get to the end (it's as long as 'the longest day') - I am listening to it at work and there is a lot of noise about.

    However I find it fascinating that the ideas around scarcity of natural resources which I believed were simply maufactured by Capitalists looking to profit - are exactly as I believed.

    The suppression of technology is part of this - we all saw it in the 70's when the oil companies bought up and destroyed all the electric cars - simply to ensure our dependence on oil and maintain their profits.

    I have advocated previously that one of the failings of the USSR were that it must have been impossible to measure demand with pen, paper and the speed of communication of the day - something which is competely different now - I love the idea of 'production on demand' - fulfilling needs and not producing in the hope there is a need.

    However I would say that when I have previously raised this idea here it was laughed at as 'oh so the internet is going to save us is it?' - by people who just want to be sold a solution and not consider the possibilites.

    My opinion is that the resource based Economy would work, would solve our issues and would ensure the survival of the human race.

    However the consequence of this would be that all the 'useless Capitalists' who currently benefit greatly from the current monetary system would be 'found out' - and therefore they will fight it tooth an nail.

    I have always said I am not a Communist, but infact an 'anti-capitalist' - for I don't see the point in continuing with a system doomed to fail - and I am not so self centred to promote it simply because it benefits me. I don't care what comes next so long as it isn't Fascism and it's progress from where we are now.
    I'm not sure about the technology behind the computerised selection of proposals - but this could be easily solved with a true voting system based through the same portal.

    ....so when do we get started? - This system is about to die, best get writing some programs - luckily JavaMan is all prep'd and ready...

  • Comment number 88.

    If my friendly bank can unilaterally increase the interest in my paltry £1000 personal account overdraft limit to 19%, then breaking up the too-big-to-fail banks is a no-brainer.

    And I'll not tell you what they are doing on my business accounts.

    Lets see some serious new competition -well overdue.

  • Comment number 89.

    #73 Jacques Cartier wrote:

    "Here in Wales, we are discussing leaving the London debt with England
    and joining the Euro, debt-free!"

    Excellent news Jacques...! And here in England were preparing to widen offas dyke. Once thats done, I think were planning to send the machines up to Hadrians wall to finish it off properly. I think 30ft wide and 40ft high should do the trick.

    ;-)

  • Comment number 90.

    #72 wrote
    23. At 10:09am on 12 May 2010, yam yzf wrote:

    > Bear Stearns and Lehmans were both single market banks - they failed.
    > Fannie Mae - single bank/mortgage lender that failed.
    > AIG - single insurance company that failed
    > Northern Rock - single bank that failed
    > Dunfermline - failed mortgage lender
    > Bradford & Bingley - single bank failed

    It is not "single market bank" that unites all these failures. It is "fragile business model". And many, many financial units had fragile business models. And will have again, there can be no doubt about that.


    I disagree. The one thing that unites all these banks (and RBS and HBOS) is useless management. The banks have gone bust for the same reason most insolvent companies go bust, the management made mistakes. In some cases the mistakes were only obvious with hindsight, in the banks case they should have been obvious at the time.

  • Comment number 91.

    14. At 09:18am on 12 May 2010, marcusaurealius

    Exactly. What will be his next job when they are out of government - surgeon?

    Why on earth do we allow such people to take on such important work? Most people when applying for a job are faced with the hurdle of 'Must have experience' in addition to the qualifications. It really is frightening.

  • Comment number 92.

    47. At 11:58am on 12 May 2010, writingsonthewall wrote:

    'My grandmother always said - 'empty kettles make the most noise''.

    You are certainly the most noisy on these blogs. That's not a criticism at all, but do you not get the irony?!

  • Comment number 93.

    48. At 12:19pm on 12 May 2010, writingsonthewall wrote:

    'I do fear for the Scottish and Welsh now - for the Tories will follow the Thatcherite policy of "They don't vote for us so we can punish them as much as we like".

    It makes perfect 'self interested' sense to the Tories - rape the border regions and funnel money into the Tory heartlands'.

    And that is different to what Labour did in what way?

  • Comment number 94.

    81. At 2:55pm on 12 May 2010, ancientfullback

    Useful, thank you. Keep them coming.

  • Comment number 95.


    To Robert Peston (for Vince cable)

    If the Lib Dems are determined to raise money from the rich through capital gains tax why are they still exempting the rich from paying CGT on over-expensive property, eg main residences (over say 1 or 2 £million)? I don't see the justification for this continuing exemption, which provides an enormous CGT loophole as well as seriously increasing property prices in Britain.

  • Comment number 96.

    83. At 3:10pm on 12 May 2010, Squarepeg wrote:

    "WOTW has opposed the previous administration almost as strongly as he is likely to oppose the next. Do you believe the previous administration to have been more Socialist than the next one is likely to be?"

    They're all neo-liberals - there isn't a socialist among them. Brown is merely a misguided soul - just like the Bolshevieks were - glutton for power and driven by self interest - not reflecting the true majority in the country - the working class.

    Despite starting out as 'best intentions' all leaders succumb to greed and lust for power - look at Clegg and how he has rapidly dumped his principles for his title of 'deputy dawg' - he may well genuinely believe he can sway the Tories in policy making - but when did you last see the tail wagging the dog?

    Politics is a sideshow in my opinion, we're never going to get an elected person or body who dismantles Capitalism - the only way will be through a peoples revolution. Any other hope for 'change through democracy' is wating your time.

  • Comment number 97.

    "Estonia 'can adopt euro' in 2011 - EU Commission"

    ...some people just don't learn do they????

  • Comment number 98.

    Of course, sucking demand out of the economy by pay cuts, won't help.

    What is necessary is the creation of wealth, through Factories producing products which are needed in Britain, and ideally abroad too.

    But, with artificial exchange rates, for example the Yuan / Dollar, it is impossible for the UK to compete globally.

    The only way ahead, (unless you are prepared to condemn two thirds of the population to poverty, and various degrees of unemployment) is to introduce Import duties on those goods that could be reasonably produced within Britain.

    The current trend is for UK businesses to be bought up by foreign firms who then relocate factories to labour cheap countries and then export the goods they make back to us.

    There is no long term future for Britain if that practice continues.

    The only answer is Import restrictions/ punitive duties levied on such goods.

  • Comment number 99.

    Oh yes.

    A nice big Pay rise for the Public Sector workers, say 30%, a bit like certain Insolvency practitioners awarded themselves !!!

    That would boost the Economy, as the extra Salaries, would be spent in Private businesses (more Sales,more Profit, more Jobs), banked in Bank Accounts etc, etc.

    A better form of Inflation than quantitative easing.

  • Comment number 100.

    Someone I know accused me of being a Sadist the other day.

    All I did was express disappointment that a Hung Parliament did not in fact result in various feet swaying in the Breeze on Tyburn Hill.

    Bankers, Politicians etc just make me cross sometimes....

    Or perhaps I am a bit sadistic by nature.

    It is an imperfect world after all.

 

Page 1 of 2

BBC iD

Sign in

BBC navigation

BBC © 2014 The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.