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How will the Chancellor repay debt?

Robert Peston | 17:21 UK time, Wednesday, 29 October 2008

The Chancellor has said that he needs the flexibility in the looming recession to spend and borrow more than would be possible if he adhered to the fiscal rules.

These are the strictures on how much the Government can borrow that were introduced in 1997 by Alistair Darling's predecessor as Chancellor, Gordon Brown.

The positive gloss Mr Darling put on this admission that those rules would be breached is that - with recession looming - only spending by government can compensate for a slump in spending and investment by businesses and households.

And more government spending would mean more borrowing and an increase in the national debt.

Alistair DarlingBut Mr Darling also conceded in an interview with me - to coincide with his Mais lecture on "maintaining stability in a global economy" - that there's a negative side to the inevitability that the ratio of the national debt to our economic output is set to explode through the 40 per cent ceiling.

The current contraction in our economy means companies and households are paying less tax.

Stamp duty receipts have all but evaporated with the collapse in house sales.

And the appalling plight of banks and other financial firms is endangering 25% of all revenue from corporation tax.

So there's less revenue coming into the Exchequer just as it has to find extra money to pay benefits to those losing their jobs.

The criticism of the government therefore from the opposition is that it allowed the national debt to grow far too much in the boom years.

And it is a serious criticism, because when Gordon Brown introduced the fiscal rules all those years ago there no suggestion that they were only to be applied when the going was good.

Nor is this an academic criticism.

If investment institutions controlling billions of dollars aren't to shun sterling and the debt being sold by the Treasury - with the horrid consequence for the Government of a sharp rise in the cost of servicing that debt - the Chancellor has to explain how the fiscal rules would be changed to remain credible and how the national debt can be reduced to some kind of tolerable level after it rises significantly.

So what slightly surprised me when I interviewed Mr Darling is that he wouldn't even confirm that the fiscal rules will be reformed, rather than simply being conveniently ignored for a while.

There can be no doubt that he will have to reform the fiscal rules in a matter of weeks, and come up with a convincing plan to reduce the national debt as and when economic growth resumes - because in this economic age of anxiety, failure to do so would bring the risk of a dangerous run on the pound.

Comments

Page 1 of 3

  • Comment number 1.

    It is interesting that Robert Peston is constantly looking for angles to report which will exacerbate the very anxiety he warns about. "failure to do so would bring the risk of a dangerous run on the pound". He says this as if it is a fact but frankly we are nowhere near the borrowing levels seen either here or elsewhere in fairly recent history. Ever since his first alarmist reports about Northern Rock we have come to rely on his scaremongering to help unsettle the investing public. Whilst I have little regard for Gordon Brown I believe we must allow his measures to gradually take effect and do our best not to undermine them. I believe the media in general and the BBC in particular has a responsibility to be restrained and not to talk up each financial challenge that we seem to be encountering into full blown hysteria. I am pleased to see that some sensible investors are currently attempting to call the bottom of the market. No comment from Peston I note!

  • Comment number 2.

    Did the fiscal rules ever really exist in the first place? Didn't they just redefine economic cycles or keep their borrowing off the balance sheet (think PFI) to give the impression of following the rules no matter what the reality was?

    Yes, this is all a mess, and a worse mess than before, but I think it's just a matter of degree rather than any qualitative change.

  • Comment number 3.

    with absolutely everyone taking a short-term view - and expecting a quick fix (because lets face it, the public and the media are all bored of this story now, downturn? recession?? depression .. yada yada yada).

    the government are desperate to hold off the inevitable bad, nay terrible news that we are spent out and we just cannot go on as we stand. So they will just keep everything looking 'ok' and hope no-one notices the black shadow lurking around the corner.

    So its all going to be short-term.

    that applies to the UK economy.
    and to the value of sterling.
    and to the delay of the real kick-in of the recession.

    but also to the day when Labour are kicked out.

    I wonder if the conservatives can save the day again, like they did the last time - or if we are all just so short-term now that if they haven't sorted out the UTTER MESS by tea-time that we will be baying for their blood too.

  • Comment number 4.

    Robert

    If Alistair couldn't tell you what was going to happen to the fiscal rules, I suspect it is because he didn't ask Gordon that question when he was briefed.

    However once he has referred back to Gordon, and once Gordon has stopped dithering, I am sure he will let you know (throught the usual channels no doubt).

    ps. Mandleson says that the business relationship between the UK and Russia may be damaged if any one criticises him - is the business relationship between the nations so sensitive and reliant on this individual? What do you think?

  • Comment number 5.

    The actual rules themselves probably don't matter. The key is that they should have some kind of rationale - this in turn gives credibility.

    For example, we might move towards the Maastricht rules used by the eurozone - public debt less than 60% of GDP and a deficit under 3%. There would be a clear rationale for this (consistency with the rest of Europe) which brings with it a stamp of credibility, by making it less likely that the goalposts would be moved again when convenient.

    With public debt between 40 and 50% (depending on how you count Northern Rock, Bradford and Bingley and the bank bailout) we have plenty of headroom here. It would therefore be reasonable to allow a higher level of deficit in the short term with the aim of bringing it under 3% before we breach the 60% level.

    The Treasury may well want to supplement this by retaining its 'golden rule' of zero deficits over the business cycle. It would be well advised to make its definition of the cycle clearer to make that rule more believable.

    Interesting that after all these years, Britain still has to impose these rules on itself to retain credibility. Eventually people will forget the legacy of the 70s and early 90s but it may take a successful navigation of the coming recession to achieve it.

    I'll be writing a more detailed response at https://www.knowingandmaking.com/ later today.

  • Comment number 6.

    How will the Chancellor repay debt?

    By raising taxes to enable his oh so 'prudent' predecessor avoid a leadership fight.

  • Comment number 7.

    Darling will cut any government programme that will escape the notice of the entitlement brigade and tax consumption to the hilt. I would not be surprised to see savings, capital gains and property taxes revisited, he will go where the money is and take it.

  • Comment number 8.

    Well you may be surprised, Robert, but then again what value would really be placed on a new set of rules given the old set has now been proved to be so completely worthless (what most of us suspected all along, given the number of times it was redefined to suit Gordon).

    The markets will not judge Darling's husbandry of the UK economy according to his own declared set of rules, but simply against what other countries are doing in the present global financial maelstrom.

  • Comment number 9.

    You seem to fail to look at relativities in these matters Andrew.

    Having said that you are correct that as soon as possible we need a plan to reduce govenrment debt.

    We also need a complete back to basics overhaul of the world financial system. IMHO this means we need to get it back to a point where an ordinarily competent person (like a politician or regulator for example) can understand it.

    You only need to watch current share prices to conclude that currently the lunatics are runnung the asylum.

  • Comment number 10.

    There's plenty coming from people like me. I have a northern rock mortgage that will soon go onto the their svr currently at 7.34%. No chance of switching mortgage. Oh, they also get tax receipts - most people haven't lost their jobs - yet.

    There will only be a run on our country if investors think we're not a safe investment. Surely all this behaving like hysterical sheep does not look good to them?

    If anyone thinks this is 'typical labour apologist' comment I would ask - so you think anyone else would do better?

  • Comment number 11.

    I am just an ordinary family man with a wife, three children, a mortgage to pay and a job, yet I am sensible enough to know when times get hard you cannot borrow your way out of trouble.

    Gordon Brown is acting like one of those mugs on the Carol Voorderman advert, "that nice man on the phone says we can pay off all our debt that we were so worried about and still have enough left over for a nice holiday"!

    Economic growth is NOT sustainable year after year financially or ecologically, and at sometime, the debt will have to be settled.

    We are living off our grandchildrens inheritance. A completely new approach to politics and economics are required and new forward thinking people put in charge.

  • Comment number 12.

    Dear Robert

    I agree with your general proposition that the CHX is going to have to come up with a set of fiscal rules adapted for this once in a century financial crisis.

    However, is everyone satisfied that that the banking crisis has been resolved yet?

    If not it seems to me that you are being somewhat premature in expecting the CHX to:

    confirm that the fiscal rules will be reformed, rather than simply being conveniently ignored for a while.

    I'm not sure I would have used the expression - conveniently ignored for a while that does not sound very prudent to me.

    I think in reporting these issues you have to separate out borrowing to do whatever it takes to put the banking system back on a sound footing, from borrowing to help reduce the risk of depression and ease the economy out of recession as fast as possible.

    Peter Kenyon
    https://petergkenyon.typepad.com/

  • Comment number 13.

    we know for sure he will not be, its to be expected that all the major players have salted away enough so they will be happy and not have to pay too much tax.
    so the burden of there debt will fall on the fools that voted for them.

  • Comment number 14.

    Government is not the solution, government is the PROBLEM!

    Thus opined Reagan, who so many of the politically correct despise.

    But he got it right in the early 80's, as did JFK in the early 60's.

    1. Cut taxes, all manner of taxes, aggressively, especially the capital gains tax.

    2. Cut government spending, aggressively! The Nanny State's appetite for the wealth of the nation.

    3. Rinse, and repeat. Rinse, and repeat.

    It's the only way out, on either side of the Atlantic.

    Instead, we have GM going hat-in-hand for taxpayer money to be used to buy Chrysler!
    (Comment here that I know won't get past the moderators, so I won't even try!)

    And, we have a proposal floated in front of a Democrat-controlled House committee that would seize all 401-k's and have them replaced by a 'fair' government dole check.

    Heaven help us!


    Thomas Sowell says it well here:

    https://townhall.com/columnists/ThomasSowell/2008/10/29/taxing_times?page=full&comments=true

  • Comment number 15.

    How will the Chancellor repay debt?

    Simple, sell land! I'm sure Argentina would be willing to buy the Falkland Islands (it's just a bunch of sheep anyway), Spain would love to have Gibraltar, perhaps France is willing to buy the channel islands.
    And if the debt is really that bad there's always the possibility of selling Wales, Northern Ireland and maybe even Scotland.
    ;P

  • Comment number 16.

    He will say that the billions pumped into the financials, together with the money pumped into public works will provide growth from spending and repayment through profit on investment.

    What will happen is the interest rates will be cut (the usa will not allow the dollar to be sold) and we will swinging on the tail of the USA's quick deflation and then tidal wave of hyper inflation

    The analogy of a tsunami is very precise:

    Cutting interest rates is the water being sucked of the beach toward the impending wave.

    You have a bigger beach to play on before you get drowned

  • Comment number 17.

    Darling & Brown can change any permutation on fiscal rules they want, because they know they haven't a cat in hells chance of winning the next election.

    Given Brown's continuing talk of 'he long term' it is clear he intends to screw things up for the Conservatives so much that labour should have a chance in 2014/15.

    With them having shown total contempt for the British Taxpayer what ever gumph they come up with now will be viewed as more bluff and bluster.

    We must pray that labour MP's looking to save their necks will vote against any demented plans to increase debt still further which undeniably woudl not just see the pound collapse but implode!!!

  • Comment number 18.

    Define boom years.
    The implication of this article is that we're living beyond our means. Isn't it a matter of confidence?
    What's wrong with taking on debt for investment so long as the investment provides a return?
    Was it the fiscal rules that caused this situation? Did you really expect the general rules to be adhered to for ever? That would imply the government could forsee the future and if they included caveats for all possible scenarios then the rules would not be workable.

  • Comment number 19.

    If govt. increases spending to compensate for reduced consumer spending and spends it on consumers the spending side could balance out. If they borrow from consumers (who are saving instead of consuming) and later tax consumers to repay (to consumers) earlier borrowings the financing side should balance. IF they got it spot on there would be no real effects. Could they get it close?

    If they do not wish to spend on consumers (I doubt they will buy me beer!!) then they can pull forward future infrastructure investment. Then, when in the future they need to spend less on such investment, they can use the money they save to repay earlier borrowings. Increased borrowing need not mean increased future taxation if the borrowings are saved. It would be pointless simply to save money (governments can't really do that, unless we have a bal. of trade surplus and can save foreign money); they could SAVE IN REAL TERMS by spending on capital/infrastructure/housing. As long as they don't import it all from Europe. Unfortunately, we are not allowed to stop that.

  • Comment number 20.

    Mr. Darlings boss should have been saving for a rainy day during the good times. But due to a toxic combination of arrogance, stupidity and dishonesty - failed to do so.

    The plan now has to be to cut taxes, cut interest rates, and cut public spending on all of Labour's pet projects (e.g. ID cards).

    The best plan of all is for Mr. Darling, his incompetent boss and the whole Labour shower to resign and allow a Conservative government to take over.

  • Comment number 21.

    If government stamp duty income has all but evaporated, why not abolish it? - that step might encourage a few more house sales.

    This NuLab government is trying to bring forward projects to make it seem as if things are improving to help RE-ELECTION, not the economy. Increasing public sector projects has to be financed mainly by taxpayers, who are already being hit in the pocket in inumerable ways, but in particular in futrure pensions.

    Time to CUT government spending, not increase it. CUT unnecessary health spending - ie lifestyle requests such as gender changes, most cosmetic surgery, IVF etc. Get the scroungers off the dole and sickness benefits (respect for genuine disabled etc). Send the illegals back home IMMEDIATELY. etc

  • Comment number 22.

    A convincing plan. More like a cunning plan Baldrick.

  • Comment number 23.

    Over the last 11 years the Gov't should have been running a surplus and that mean't controlling the growth in public expenditure. Boom and bust Brown NEVER had any idea how to run the economy. The Uk was an experiment in Broonenomics! If Ken Clarke has been in charge we would now have a surplus to dish out to everyone as tax cuts to help people just at the moment when we need it back in our pockets.

    Unless we want to become a seriously deb't ridden country we need to stop more borrowing and START to live within our means and that means...........

    after 10 years of growth in public expenditure we need 10 years of static expenditure.............whatever the consequences.

  • Comment number 24.

    Gordon Brown recently said that bringing forward Government projects was the only way to help the country out of recession, not giving increased tax cuts. This is exactly the wrong thing that the country needs,especially as it will take a long time for these measures to have any effect.

    What is needed is for the housing market to be stabilised, ending the negative equity which is projected for thousands (or even millions) of householders, people to have more money to spend, and also to save long term so that the banks will be able to loan these savings, rather than selling off these loans as happened before. To do this quickly then some kind of tax cut is necessary, including mortgage tax relief.

    I would also advocate doubling the amount allowed in ISA, and also give extra tax credits for this. I would also suggest that cutting tax on petrol would help everyone, especially hard hit tourist industry.

  • Comment number 25.

    How to repay the debt? the Treasury hopes that it can make a few pounds by charging the banks 12% interest for the preference shares the government plans to buy from the banks.
    The banks have to pay 12% interest to the government for these shares and the government, at the same time, wants to force the banks to lend to risky mortgage customers for let's say 6-7% interest. How the banks can make a profit and stabilise their finances under these plans nobody knows.

    To summarize:

    - The government wants 12% interest for their (our) money.
    - banks should lend for let's say 6-7%
    - normal shareholders (UK citizens, pensioners etc.) get no dividends as the government has to be paid first.



  • Comment number 26.

    In my very humble opinion the government should do whatever possible to get the pound at a higher level against euro... not probably 1.50 any more, but 1.35 should be feasible... after that, enter the euro at 1.35 : 1 ratio.

    If you want to repay a huge debt, it is important you know how much it is, so freeze the currency as soon as possible and then work out the rest. It is unlikely the pound will strenghten again if the government does not declare (so call for) the expected ratio. Is it a bet? It is a load of money to be avoided -our taxpayer- the burden of.

  • Comment number 27.

    > There can be no doubt that he will have to reform the fiscal rules in a matter of weeks, and come up with a convincing plan to reduce the national debt as and when economic growth resumes - because in this economic age of anxiety, failure to do so would bring the risk of a dangerous run on the pound.

    Won't an effective devaluation will come anyway as sterling is isolated (and, long-term, weaker) outside the Euro? When the dollar declines from its present 'money-go-home' rally, won't speculative attention turn to our currency?

  • Comment number 28.

    'The Chancellor has said that he needs the flexibility in the looming recession to spend and borrow more than would be possible if he adhered to the fiscal rules.'

    The Chancelloe can't afford to spend, even before the economy started slow down the government was borrowing money to fund itself.
    They even had to borrow money to fund this years 10p tax cut rebate, if they want to do it next year they will have to borrow again.
    And that's on top of borrowing more money to pay for less tax revenues coming in.

    The idea the government is borrowing money to invest in anything other than day to day spending is false.

  • Comment number 29.

    RP> the appalling plight of banks and other financial firms is endangering 25% of all revenue from corporation tax

    Dismal. That those charged with running the economy can make such a basic mistake - overexposure to a single source of income - tells me all I need to know about their business aptitude, or rather, lack of.

    It's so simple it's on my website under "Habits of Misguided Managers". Quote:

    type: All Eggs In One Basket

    behaviours: becomes over-exposed to a single customer

    likely outcomes: insolvency (when this customer takes their business elsewhere, there may not be enough additional income to keep the business afloat)

    early warning signs: the business spends all its time servicing one customer

    responses: explain how the business could fail if the key customer walks; suggest sales staff

    Yawn........

  • Comment number 30.

    OMG @ 15 what are you mad how can you even think along those lines.
    all i can say is treason is still a crime thankfully.
    next youd say selling northern ireland to the south along with any other overseas properties sold back, i can only hope you dont have property in spain becouse they may well just take it back.
    let alone all the lives lost in conflicts to proitect the sovrenty of the people of those overseas properties.
    why waste money on our military just sack them all sell off the equipment etc to cover the debt would be the next phase, totaly nuts.

    just raise taxes by 15% across the board and cut government spending by the same will quickly reduce the loan amount.

    close the NHS making every one take out insurance to cover health, would also save money towards the debt.

    charge higher taxes on second homes, car tax increases and fuel tax upped, alcohol tax increased along with tobacco.

    all measures used to pay off the debt.

    but mp's are to still get there pay rises above inflation to keep them happy.

  • Comment number 31.

    14:

    Don't believe all myths.

    In the 1981-1983 recession, that is the Reagan-period you talk about, government borrowing increased (!) actually by exactly the same as the drop in private borrowing. They actually did what the current British government is doing. The key policy was not the tax cut, but

    1) allowing firms to write off interest payments from tax, that is, when the prime rate was above 20% and the firm still managed to make profit, it got a budgetary transfer in effect. This facilitated the largest inter-sector asset transfer in the US in the post-war period
    2) with such a high interest rates the dollar exchange rate was sent high (reaching the top in 1985 with one pound = one dollar)
    3) which led to massive short-term capital inflow (sizes unseen before) that financed the budget and the current account deficit and made the US the largest debtor of the world (17 trillion dollar then including household debt)
    4) almost all the capital inflow went to current consumption and not investment, creating the lowest savings ratios until then facilitating the credit based economic growth.

    If you want to do this, make sure that your currency is the key international currency and hope that when your currency is devalued, you can pay back your borrowing (it was partly successful in the US in the 1980s), leaving the creditors high and dry (instead of rinsing). You also have to account for the disappearance of manufacturing (whatever left of it) and also that people would continue to expand their consumption and as real wages have not increased in the US in the last 20 years, thus it has to be done from credit. Now you have to make sure that people get credit. Since there is not enough money, you may want to create monopoly money (why don't we start with junk bonds which creates volatality in the securities markets and continue with SIVs).

    Now where is it so familiar from?

    So, your suggestion is actually what historically (not directly) led to the current situation.

  • Comment number 32.

    18. At 7:02pm on 29 Oct 2008, 5imple5imon wrote: "Isn't it a matter of confidence?
    What's wrong with taking on debt for investment so long as the investment provides a return?"

    5imple5imon, confidence doesn't achieve anything economically. What you are referring to is trying to keep people from realising that their pyramid scheme is going to collapse. Investment is when you use someone's money to produce something. That something has a value, and some of that value can come back to you as an investment return. When you pump trillions into a country's inflating housing market you don't produce anything, nor when you heap mountains of money onto scores of investment bankers. All of that is not investment, it is life on debt and it is by no mean sustainable.

  • Comment number 33.

    Post 16 Peterskitchen

    This blogger is ahead of the curve for definate!

    Does the Gov't not realise that all this loosening of monetary policy and now fiscal policy is only going to bring back inflation.

    Gov't policy seems to be as volatile as the markets....when what we need is a steady and resolute hand.

    Once inflation is back we'll have to have a new policy framework!

    Best to buy houses, commodities and shares because in 3 years your CASH will become increasingly worthless!

    Brooneconmics..............back to the 70's we go....hyper inflation, high interest rates, high unemployment, poor growth.

    Even Camoeron hasn't got it yet.....we need repay our debts, resist taking new ones on, stop the growth in Gov't expenditure (whihc means in real terms it will be cut over a few years to a level that we truly can afford) and basically work damn hard as a nation to get ourselves out of debt!

    The nice decade really is over. The nasty one is about to begin!

    The sad part is that had we lived within our means for the last 10 years the nasty decade would never have to happen.

    Gordon Brown is solely responsible for this debt fuelled asset boom which is now bursting in all our faces.

    Come on Cameron............stop being a lackey to Brooneconomics........ tell the country as it is...we are ready to listen.

    Thatcherite remedies required once more..........

  • Comment number 34.


    This looks like a great time for Gordon and Mandy to announce that the famous-five conditions for entering the Euro (on sell-out terms) have been miraculously met.

    Value of Sterling (debts) reduced at a stroke and the whole damn mess not his problem any more - over to EU !

  • Comment number 35.

    Why does the Government need to open the spending taps? Next year, to quote the phrase, the pound in our pockets will be worth more. The inflationary bubble of the last 12 months or so in oil, food etc will pass. Deflation is a possibility.

    If the BofE cuts interest rates and the Govt. cuts taxes, the economy will likely rise without the need to man the money pumps. Let the workers of the UK get us out of this mess not the Nanny State!

    Unfortunately we have a Labour Govt. and they like nothing more than handing out largesse and encouraging debt.

  • Comment number 36.

    It seems a contadiction that it was a high level of debt that put the banks in their present plight, and now the government intends to do the same on behalf of the taxpayer. Let the banks dissapear and leave Mr. Prescots working class to get paid weekly in cash and not have bank accounts. Let the C.C. companies shrink and have a true economy where we get what we earn.
    We did not need accounts and C.Cs. until about 30 years ago.

  • Comment number 37.

    Another problem looming for the chancellor is the amount of mortgage interest paid to those losing their jobs

    Good for the lenders and home owners but very very bad for the taxpayers

    Mortgage interest will be paid on mortgages up to £150000 from January for the qualifying unemployed.

    This despite falling house prices.

    So the lenders will benefit by full repayments of interest backed by the taxpayer continuing for an unspecified period of time, maybe years on the depreciiating assets of the home owner.

    Not a good incentive for the home owner to take a lower paid job then.

    I don't think this government have costed this one out yet but the mind boggles.


  • Comment number 38.

    Paying off the debt would cause a recession... No really...


    All our money comes from debt, so paying it off will simply destroy the credit and reduce the amount of money which exists.

    This will cause a recession...

    The debt can never be paid. Any talk otherwise is simply bluster.

  • Comment number 39.

    33 Northernthatcherite

    Thankyou ,

    However, instead of staying ahead of the curve, I would rather be behind it as it sweeps in it will take all and sundry

    Unfortunately, I need to repair the boat first

    Do I borrow or save?

    If what I think actually happens in the majority of the worlds population then savers will get value by getting good rates above interest, but before they get a decent return the tide will have swept in and the boat will sink.

    We will be left floating in an ocean that clearly did not change water into Gold

  • Comment number 40.

    If the money borrowed is used to fund investment which would have been necessary anyway in the future, then less money for investment will be required in the future. This should make repaying the loans easier.

    If a repeat of the asset price bubble is to be avoided, higher taxes will be required anyway, if and when the economy starts to overheat. There will be no need to reduce the debt until this starts to happen.

    The golden rules always were economic nonsense. The important thing to watch is the real economy. Control of the money supply should be
    dedicated to keeping the real economy healthy, not obeying arbitrary rules.

  • Comment number 41.

    Robert, I wish you weren't so negative. Maybe Andrew Sachs could complain about your negative blogs, and you'd be sent to the naughty chair with Messrs Brand and Ross?

  • Comment number 42.

    Maybe he could sell off the Queen and the Royal Family. Turn Buckingham Palace into Disneyland. Privatise them, and make them wear mickey mouse costumes to entertain the tourists.

    Should ease up a little of the taxpayers burden.

    Not much, but every little helps right?


    See how they like them apples.

  • Comment number 43.

    true-liberal - If you make overpayments on your mortgage earlier you save countless thousands in interest that would have gone to the bank.
    You end up with a net profit.

  • Comment number 44.

    In the land of the blighted.....the one-eyed moster is king[Canute]!

  • Comment number 45.

    The Fiscal Rule (FR) was introduced to Parliament when Gordon Brown (GB) became Chancellor.
    Before that there was no FR.
    So what is so earth shattering that the FR is to be dropped, suspended?..
    Absloutely Nothing.
    There is no need for PP (Pessimistic Peston) to get his proverbial knickers in a twist. Just accept that it is going to happen and get on with your life. The world will not come to an end and the sun will still rise again in the morning and you, PP, will still get your salary cheque at the end of the month.
    Your apparent concern for everyone in the planet is laudable, but it is not your responsibility, so just relax and enjoy life...or maybe you can only relax and enjoy life when there is a crisis as we are having right now.
    Finally, when sitting at the news desk, waiting to be interviewed, please do not do so, slouched and with your hands in your pockets, it's so unprofessional.

  • Comment number 46.

    Frankly, nobody gives a hoot what Darling or Brown say about the economy. They no longer have any credibility and are just introducing short-term measures to try and save their skins.

    It doesn't wash with me, or with the electorate.

    I am coming to the conclusion that the best thing government can do right now is absolutely nothing.

    Lowering interest rates and increasing spending will cause a run on the pound and send the country to bankruptcy.

    Raising interest rates and lowering spending will save the pound but make companies and individuals bankrupt, with much the same result.

    So we are stuffed whatever they do. Even electing in a new government will not help, although we would all like the satisfaction of seeing labour booted out with a flea in their ear.

    Labour have ruined this country, turning it into a degenerate, splintered, alcoholic, bankrupt police state. End of story.

  • Comment number 47.

    There can be little doubt that the problems now facing UK plc are structural and by their very nature long term. At a governmental level the old revenue streams can no longer be relied on and only as the economy rebuilds over several years can certainty about where the new revenues be found be developed. At industry sector level it is probable the banking and finance will never regain its former cash and profit generating status ( given where it has got us this is probably a certainty). Where future growth for UK plc is to be found therefore is still unclear. Any exceptional public spending now therefore could have a much more profound long term negative effect on those yet to be developed future growth sectors that in the longer term will be the only solution to our current woes. Sound business people plan their revenue streams,investment and spending plans with a precision based upon detailed knowledge and analysis of where the money can be reasonably expected to come from. Why should governments be any different? Just hoping that the average (and much overburdened)tax payer will cough up is not good enough. A detailed vision and plan for UK plc is now required. No political party seems to have yet thought past the crisis management of the immediate situation to address these issues or even initiate the vital seeding that will allow the green shoots to appear sooner rather than later. What will probably prove to be at least a five to seven year recession could easily turn out to last ten or more if our politicians continue to show such a spectacular lack of leadership.

  • Comment number 48.

    This is fundamentally liquidationist nonsense. Total UK debt is below the 60% Maastricht limits so there's plenty of room for more government borrowing.

    Any attempt to cut spending during a recession is doomed to failiure as those sacked from their public sector jobs will end up claiming benefit so you will only shift spending from department to department.

    Cuts in spending will also lead to less demand, further cutting tax revenues.

    The only way to effectively cut government spending in a recession is to cut public sector wages and benefits, i.e. Snowden's failed policies from the 30s.

  • Comment number 49.

    What I don't understand is how Brown and Darling intend to borrow all this amount at the same time as interest rates are being cut.

    Can't help but feel that everything is designed for the very short term, until the next election, after which they hope that something will just turn up.

  • Comment number 50.

    At Cass Business School this evening, Darling acknowledged the mistakes of the Barber Boom and the Lawson Boom but had nothing but praise for the government's actions during the Brown Boom.

    He spoke about the need for targeting true inflation, including assets such as houses, rather than just CPI, yet went on to declare that the reversal of the decline in house price inflation in 2005 was some sort of victory.

    He suggested that past recessions had been homegrown but that this one was due to external factors. Newsflash for Mr Darling - this recession, like those of Barber and Lawson's booms, is homegrown; only the trigger is external.

    Whilst tackling the mildy irritating form of inflation shown in CPI, New Labour actively encouraged the more damaging and more explosive form - a house price bubble.

    Brown's government should be relieved of their duties, as they are clearly not fit to undo the damage they have caused.

  • Comment number 51.

    This is hardly "relaxing "the fiscal rules its re writing them to suit.....and it goes without saying that even though the previous rules didn't work they don't admit it......



  • Comment number 52.

    I must confess to being confused by those posters that believe that the answer to all our problems would be a return to the economic policies of Reagan and Thatcher.

    Surely the problems that we face now are both attributable to policies pursued by both leaders in the 1980s and will furthermore, be exacerbated by them.

    It was finanancial deregulation that allowed the credit bubble to become so inflated and the ideological aversion of those in government to any kind of intervention in industry which has left us in real danger because we have an economy which is so heavily reliant on people working and feeling confident that they will be working in 3 months time (financial services and service industries in general).

  • Comment number 53.

    Instead of borrowing to get us out of trouble, why don't they just stop blowing it all on wars in other countries?

  • Comment number 54.

    To avoid a damaging run on the pound put interest rates up.

    If we do not (put up interest rates) and increase borrowing as anticipated, then the pound will collapse and the spending we are contemplating will be wasted.

    However putting up interest rates will ensure large numbers of mortgage defaults and repossessions, but it will get house prices down quickly.

    It we do not put up interest rates, or worse still lower them, the pound will crash as we increase borrowing, but as our borrowing will be in foreign currencies it will cost us even more and still the economy will crash.

    So in the end we are shafted anyway or more politely caught between scilla and charybdis!

  • Comment number 55.

    The Government is behaving in a way that, if its citizens followed suit, they would individually be bankrupted.

    Moral hazard is written through this whole 'escape plan' - if indeed it's a plan at all.

  • Comment number 56.

    #46 - "They no longer have any credibility and are just introducing short-term measures to try and save their skins. It doesn't wash with me, or with the electorate"

    I agree (ref my earlier comment #3), but I have a horrible feeling that whilst this may not wash with you, it may well wash with the vast majority of people eligible to vote.

    I'm not being demeaning to the public by saying this. But:

    * the real reason for the mess we are in
    * the current events and why they are happening (eg CDS, carry trade)
    * the sheer inter-related complexity of the global economy and associated financial mechanisms that have been built upon and over it
    * the previous historic economics events/disasters, how they came about, how they were addressed, what lessons might be learnt (e.g. Great Depression, japanese crisis)
    * the reality of economics being an art and not a science

    c'mon, this is difficult stuff and I just don't think the level of common understanding in the street is capable of ever being raised to the required level to have this rationally debated and therefore criticised.

    Plus - and the common point I think we both agree on - we live in short-term world. The press are already bored. The public are too. Until the next disastrous turn of events, that is. It won't be long .. but I fear we have several more progressively worsening (and costly) events to go through before we reach either a sufficient outcry of public anger, or the vote of no confidence in Parliament, or even both. I guess the latter is the most palatable – and the most British.

  • Comment number 57.

    The trouble is that we have a government that has squandered millions over the last 11 years, and it now wants to squander more. And just like the bankers there is no accountability, just spin and manipulation.
    A government that was all about "Education, Education, Education" - but they haven't learnt and adapted. And today it's announced that future students are having their grants cut because the government can't add up properly.

    There was a time when one could be proud to be British. It would be great to regain that pride, but with our current captain it's clear that the we're in for more doom and gloom.

    Government has expanded out of control, we squander billions on the EU, we're fighting wars with no end in sight. And they want to squander more. Keynesian economics suggest spending one's way out of recession. Now if the government cuts out the huge waste, bureacracy, unrequired costs, then it could cut taxes, and hence stimulate demand and keep the economy moving. But this government loves waste, loves bureacrats - why else bring mandy back...?

    The one key message of the of a previous era was the importance of a small government that provided the necessary regulation and safety net so that the rest of demand could be supplied by the free market. Why this focus isn't paid more attention is beyond me.

  • Comment number 58.

    48: "This is fundamentally liquidationist nonsense. Total UK debt is below the 60% Maastricht limits so there's plenty of room for more government borrowing."

    Not when the taxpayer is severely personally indebted. Government borrowing can only be funded if the taxpayer has taxable disposable income in excess of personal debt obligations. I doubt this is the case. All historical case studies of Keynesian policy break down when the taxpayers upon whose shoulders the burden of additional government borrowing will eventually be placed have thousands of pounds of high interest credit card debt. Comparisons to continental Europe break down also. How many continental Europeans are using balance transfers to juggle several credit cards? Increasing government borrowing will eventually put a squeeze on unsecured debt repayments.

    As a side note, I bet by now the moderators are better informed than the Treasury.

  • Comment number 59.

    #46 wykhamist has summed it up in a nutshell.....we've all been shafted.

  • Comment number 60.

    Have a nice holiday cityNickDrew!

  • Comment number 61.

    Hi Robert

    No political points from me, nor casting aspersions on your reportage motivations - you may be relieved to read.

    Just a simple question which I've tried to get answered by posting eMails and on blogs related to various BBC radio and tv news, current affairs and money-related programs.

    It's a two-part question actually:
    1. With all the recent talk about the government's having to borrow as part of a strategy to anchor the economy, why in no interview nor report nor on-air analysis do we get an explanation of the terms?

    I remember Peter Snow with all his graphs and digi-charts giving us extremely helpful explanations of various news stories, such as election swings, etc.

    The economic situation is very complex and many viewers and listeners, like myself, are interested but with huge gaps in our economic knowledge.

    You sound very credible, Robert - how's about a primer either on radio or television [not just we internet elite] on the basics.

    For instance:
    2. If we've just bailed out various lending institutions with billions of our tax-monies, and now we hear the government intends to borrow money for our failing economy -- exactly whom are they borrowing from?

    If everyone's skint, who's got the dosh?

    I've heard people mumble stuff about bonds and gilts. I don't know what those are. Can you please tell us. How do you borrow from a bond?

    Also - if the government is borrowing money, on what terms is it being lent? What are the implications for us? How soon do we need to pay back the money and at what kind of interest rates?

    I'm guessing you and your colleagues probably know the answers to this kind of stuff. But I'll bet I'm not the only BBC audience person who isn't offay with business terms. I don't want to be patronized, I don't want to score political points. But I would like the courtesy of a corporate policy on the part of the BBC to explain these things.

    Hoping you'll agree and assure that - whether or not you provide a reply here - that you manage to blag some time on your next on-air report to make sure we viewers and listeners are treated to a comprehensive explanation of exactly what "borrowing" means.

    Thanks for your attention.

  • Comment number 62.

    Mr Darlings policies were a fantastic winner when he was transport minister. So I believe anything he says will steer our country out of economic disaster and back onto a path of wealth and security. I can also dance on the sun....

  • Comment number 63.

    Peston's blog is obligatory reading on this side of the Atlantic - USA. But all the optimism -- not his -- associated with the Fed bail out and presumably the BoE scheme is foundering fast as the penny drops that the banks have no intention of opening up their lending policies at all. They will hang onto the capital or use it to buy up smaller banks and consolidate. The markets will continue to clog up and the residential property markets will fall even further as homeowners are forced to sell just to clear the decks. Those below deck will just give up.
    Evidence of this is emerging fast and increasing blogs on US sites confirm this.

  • Comment number 64.

    Obvious! Increased personal and other tax rates for many, many years to come. Tighten your belts.

  • Comment number 65.

    HI ROBERT - GOT A SCOOP FOR YOU - BETTER BE QUICK - DARLING HAS ABANDONED GORDONS 'GOLDEN RULES'

    THERE WAS SOME SPIN ABOUT IT BEING 'A RELAXATION' BUT THAT WAS FOR THE IDIOTS - NOT FOR MEN OF YOUR CALIBRE.

  • Comment number 66.

    ARE YOU FACING REPOSSESSION, DO YOU NEED A BAIL OUT?

    THE ONLY PROCEEDINGS THAT CAN BE BROUGHT AGAINST A JUDGE IS FOR MISCHEVIOUS BEHAVOUR. HOWEVER, POLITICIANS ARE INFAMOUS FOR SUCH BEHAVOUR AND EXEMPT FROM PROSECUTION EXCEPT FOR FRAUD – BUT PROCEEDINGS CAN BE BROUGHT AGAINST: THE LEGISLATION, REGULATIONS AND DECISIONS THAT THEY MADE, AND AGAINST THEIR FAILURE TO MAKE AND ENFORCE PROPER REGULATION THAT WAS THE CAUSE OF THE CREDIT CRUNCH AND THE SITUATION IN WHICH YOU FIND YOURSELF.

    HAVE YOUR MORTGAGE WRITTEN OFF, AND INSIST THAT YOUR BANK OR BUILDING SOCIETY, PASS ON TO YOU, THE CUT IN INTEREST RATE BENEFIT RELIEF, INCLUDING BACK DATED BENEFIT, FROM THE BANK OF ENGLAND, TO YOU, AND IF YOU LIVE IN THE USA FROM THE FED TO YOU.

    AND WHY NOT?

    After all, Bankers were gambling with mortgage-backed-securities using them as collateral in unregulated volatile markets and they lost them causing a crisis – the effects for you as a homeowner and taxpayer are devastating.

    At no time did homeowners and taxpayers give authority to any bank, building society, institution or any government to create, or gamble with instruments used as collateral putting their homes at risk. At no time did your lender in principle and in law have the authority of the regulators, or authority of law.

    Why should you pay for the greed and ruthless behaviour, most foul, of the super-rich bankers, who caused the credit crunch and contributed to it? – Not only is it the biggest modern-day bank robbery but the biggest robbery of the economy leaving it vandalised. It was all avoidable. It didn’t have to happen.

    At no time has the taxpayer been responsible for the conduct and dealings of private investors or for loses incurred by private transactions of banks, mortgage lenders or any financial institution.

    Many homeowners struggle for years to get on – and stay on – the property ladder. Why should they pay for bank loses by way of: Increased interest rates; negative equity; repossessions - made homeless with predatory bailiffs plundering their property?

    Why should they pay with: financial hardship; not able to put food on the table; mental stress; and devastating effects of it all for the rest of their lives and their children s lives - whilst the bankers are having a party?

    CHANGE OF THE SYSTEM

    Up until 1997, the Bank of England controlled the Banking system. It was common knowledge that prior to 1997, mortgages were protected from such abuse, under existing safeguards of regulations and the law, and that mortgages, in particular, were sacrosanct.

    Mortgages were only to be used for the purchase of property; loans for all other purchases had to be through a bank loan or hire purchase, which were short term and had a higher rate of interest, there was a separation of deposit banking and mortgage lending. The lending banks and building societies were strictly regulated.

    However, Mr Brown decided that he didn’t like that anymore. So he introduced a system were we had, the Financial Services Authority, the Treasury, and the Bank of England, (the Tripartite Authorities) carving up the job amongst them. Just one big problem – when there was a crisis, apparently nobody knew who was in charge. The effect of all this – the system unregulated.

    The bankers most certainly knew the enormous value of your mortgage backed by the secure asset of your home, and that they would be the driving force behind a powerful booming economy. They knew they would make a fortune if they could trade them on the US financial markets in the same way as US government-sponsored-enterprises, or GSEs. However, the bankers knew they couldn’t be traded unless they were taken out of their protective regulation. So how did they get their hands on them?

    Well, first, you must know what you are doing, and know how to have them deregulated. By changing the banking system in 1997, banks were able to trade CLOs and other stealth products through institutions, but an institution is not called a bank, and therefore operated outside strict bank regulations. This was the key to the unscrupulous bankers making a fortune. The question one should keep in mind is, was it Mr Brown's idea, or the Bankers' idea, or both? Who persuaded who? Brown was the only one, in his position as PM, that could make such a decision.

    Mr Brown when answering questions about the economy he says: I want to do……. He never says what he can do. He says that he wants ‘Transparency’ in the banking system, but he somehow omits the word ‘Accountability’. The only thing that will give stability to the markets is a proper DETERENT.

    BROWN AS CHANCELLOR CLAIMS THAT HE IS NO NOVICE - BUT IN EFFECT, HE HANDED HIS CONTROL AUTHORITY AND THE STABILITY OF OUR ECONOMY TO UNSCRUPULOUS GREEDY BANKERS IN THE USA A FOREIGN COUNTRY.

  • Comment number 67.

    Any bets on a terrorist incident being engineered to distract from all this mess?

  • Comment number 68.

    #15 Get real !! Who the hell would want to buy Wales. It's just a bunch of sheep there. And Doctor Idi Amin Dada, President for Life and King of Scotland is no more !! So he will not be buying Scotland. As for Northern Ireland, the Irish are too busy with their own financial woes to want to take on more of the same !!

    France may want the Channel Islands since they lost Devil's Island; see Papillion - the book or the movie !! A good place to dump their unwanted citizens !! Hostile environment and savage natives come free with the purchase, see news about the orphanage there !!

  • Comment number 69.

    #48 "Any attempt to cut spending during a recession is doomed to failiure as those sacked from their public sector jobs will end up claiming benefit so you will only shift spending from department to department."

    Ah, but sacking a 60,000 quid a year do-nothing public "servant" and putting him on the dole *WILL* save a significant sum. Multiply this by many, many times and the savings mount up !! Cutting MPs salaries and expenses will make that mount up even faster !! What representation have our MPs given us during this crises that justifies their pay ??

  • Comment number 70.

    Just read the news that China has cut interest rate by 0.27% because they have a "recession" !! Their growth is predicted to fall to 9% next year !!

    9% growth in the UK will have Gormless Gordon and his cohorts salivating like Pavlov's dogs and the Chinese complain it is not enough !!

    Expectations, expectations !!

    The Chinese can afford to cut rates because they are a major (if not *THE* major) exporting nation !! They also hold a massive lump of the US debt; approx. US$ 2 trillion !! With the US$ so high now, I bet they will be liquidating some of that debt before it becomes less valuable !! Watch for a sharp fall in the US$ in the very near future !!

    If Gormless Gordon tries to issue gilts into that same market, I don't think he will get many takers unless the terms are disastrously bad for Britain !!

  • Comment number 71.

    CUT GOVERNMENT SPENDING TO REDUCE BORROWING. Government spending can be cut without cutting front-line services in schools and hospitals.

    First, every single MP takes a 0% pay
    & expenses increase until the economy starts to the grow. A gesture but an important one.

    Did you know that government Quangos cost the taxpayer £50bn a year?

    Unelected levers of government 'advising' them what to do?

    How about listen to the people?

    Get rid of the Quangos, simple, just announce a complete closure of activities. Give them their severance pay and let them go looking for work in the productive sectors of the economy.

    Did you know that RHAs and LEAs skim as much as 17% off the health and education budget?

    For what? What value for money do they bring to the party?

    Abolish the LEAs and RHAs put the schools and hospitals in charge and give them money directly from government.

    I reckon that's another £15bn a year.

    So that's £65bn a year saved.

    Job done.

    One slight problem, the swelling of the quangos and the swelling of these 'middlemen' is a purely Labour phenomena.

    Labour has added 400,000+ extra civil servants to the roll since 1997.

    Fat chance of streamlining it then.

    It wouldn't be difficult to go further and then pass the savings as tax cuts.

    Let the people decide what to do to get the recovery started, after all, it was always their money to begin with.

    Robert, you seem to forget that.

    You also forget that in the late 1970s, the economy was in tatters (again under Labour stewardship) with a better current account position than now (a surplus), lower percentage national debt and lower personal indebtedness.

    Continuous Keynesian 'stimulus' did not work then and it resulted in government 'crowding out' investment and offering very high interest rates to attract investors.

    It famously led to Geoffrey Howe in 1981 raising taxes to cut interest rates prompting 364 economists to write a snotty (and wrong) letter to the Times.

    Why Keynes should ever darken the UK's door is completely beyond me.

    Or does Labour have a point to prove over a haunting ghost from the past?

  • Comment number 72.

    So they aren't going to Nationalise the Building Companies then ?

    Thats what they were talking about doing to save jobs.

    Desperate times desperate measures.

    I still remember Bradford and Bingley.

    Three days after its directors state it is in healthy condition, the Gov't take it over, with no compensation to shareholders, and give it best bits to a Spanish Bank.


    Very little air time has been given to the Spanish financial crisis, affecting many Brits living abroad who have bought homes in Spain.

    Of course Spanish property prices have fallen more in some areas than the British prices.

  • Comment number 73.

    The Chancellor will print money.

    It would just be nice if he treated the Public sector with a bit more respect and at least matched the average private sector pay rises.

    Of course with Inflation heading up possibly to eight to twelve percent everyone will feel poorer.

    As Sterling falls towards one pound one dollar, all our imports will start to become more expensive.

    Sterling will decline further against the Euro.

  • Comment number 74.

    Good morning,
    Having just read all the doom and gloom again must tell you that the cocks crowed last night in Dubai and this is a sure sign that my remedies are working.
    Some geezer tried to borrow our truck last night -not until the fat lady croaks.
    Regarding the selling of vast pieces of real estate to pay the bills.
    I am sure that someone has already borrowed the UK, sold it back to them, bought it again and given it back.

    Can you please leave it alone as we will be in sight of the coast soon.

    PS 2.1 bn to save Iceland but 18 bn car scam. You think I'm crazy.

  • Comment number 75.

    Ah, the Government gives Gilt edged securities to a bank, who then credits their account (the Gov't s) with a sum of money equal to the value of the Gilts.

    Or the Gov't pays it's contractors directly with Gilts.

    Gilts are just promises to pay later that attract interest.

    Like Hire Purchase contracts, nobody strictly speaking has to put money up front.

    Printing Presses are go !

  • Comment number 76.

    Actually, if Gov't spending is cut, more businesses will fail.

    It is easy to close a business, hard to start one up again.

    Capital once lost stays lost.

    Not many ex millionaires make another fortune !

    Restraining Public sector pay has put the brakes on the economy at just the wrong time.

    Afterall the Public sector represents a significant body of consumers.

    If they can't spend money or are put into poverty (some are) then the businesses that depend on their trade will start to fail.

    QED.

  • Comment number 77.

    71

    Didn't high paid consultants start with the Tories ?

    Five Hundred Pounds an hour !

    Thank you Mrs T!

  • Comment number 78.

    1. We have spent and borrowed our way into this recession.

    2. Our government proposes spending and borrowing our way out of it.

    No crystal ball required to predict the future - absolute disaster!

    Regaining control of the asylum is the main priority.

  • Comment number 79.

    "Government borrowing can only be funded if the taxpayer has taxable disposable income in excess of personal debt obligations" says W/S.

    Or if they eventually print the repayments and leave non-state pensioners to bear the grief. Remember the inflation after Barber's 'dash for growth' and the Weimar mega-inflation?

  • Comment number 80.

    Dear Mr Supercalmdown,
    Please calm down!!
    Moderators going down like flies keeping up with you.
    Stopped for breakfast.
    Locals blame everything on de Gaulle, but I don't see what the Welsh have to do with it.

  • Comment number 81.

    A falling Pound could actually be quite beneficial in the longer term.

    Reduced imports - good thing.

    Potential for more exports , another good thing.

    No more cheap imports though and no more cheap holidays.

    Time to invest in the british seaside!

    Shortly to have a surge in new business I would think.

  • Comment number 82.

    Who thinks, as I do, that Robert should be the new Doctor Who? ...

  • Comment number 83.

    Gosh, there are people who still think that there is a crowding out effect...

    The whole securitisation happened because the capital refuses to invest in the real economy.

    The interest rate increase in 1981 was a general phenomenon (with the exception of France) in the Western world and served against inflation and not for economic growth. Also it was a break with the original Thatcherite policy (it took two years) that claimed that wage increase doesn't cause inflation (hence the huge increase in wages in the public sector - that was Thatcher).

    The British economy did not recover from that shock until 1984-85. It was a consumer driven recovery (and in the meantime creating a deficit in foreign trade which required foreign capital inflow to finance it - this is when the UK became a component manufacturer instead of product manufacturer) and got to its logical point of the 1987 Budget. It also left the UK extremely vulnerable to external shock and it came in 1991.

    France that did not apply any liberal policy until 1986 went through roughly the same cycle just as the rest of the advanced capitalist economies.

    The biggest mistake of the Labour governments of the last 11 years is the extension of the Thatcherite policies. Now they can harvest what they sow.

  • Comment number 84.

    Of course for Britain to benefit from a falling pound there must be an industry to export something in the first place.

    I would like to hear what the Gov't and shadow Gov't have in plans to establish new manufacturing industries within the UK.

    A Gov't who can come up with a convincing plan to re industrialize Britain would get a lot of Votes.

    And respect from foreign leaders.

    This is a difficult problem.

    To say Britain will specialize in creative or high tech industries isn't going to work.

    Because the size of those markets is not nearly big enough to make up the needed level of output to make a balanced economy.

    To make Labour competitive pay must fall.

    Now the less painful way is to allow the exchange rate to atrophy thusly sharing out the fall in standards of living across the whole population.

    Or one could just Inflate the economy, and hand out low pay rises to the lower echelons, penalising the poor, whilst allowing the more wealthy to continue unaffected.

    So far the Gov't has opted for the later option.














  • Comment number 85.

    Would the current crisis have been avoided if the bank of England and more importantly the Federal reserve had included house prices in their measure of inflation?
    And in breaking the fiscl rules should not the chancellor spend money only in those areas likely to increase the profitability of the UK?

  • Comment number 86.

    What else to do; we don't have much choice.

    This could have been prevented if BOE was given wider parameter not just inflation to set interest rates; like asset price inflation, growth, etc. Also CPI is a manipulated measure which didn't help.

  • Comment number 87.

    I must top up my consultancy contracts.

    Money makes the world go around!


    No Mr Peston would not make a good Dr Who!

    Such blasphemy !

  • Comment number 88.

    72 @supercalmdown

    I remember Northern Rock.

    It was nowhere near as bad as painted, but Darling's utterances made the situation worse.

    Like B&B, the best bits were sold to a foreign bank - J P Morgan the day before Blair joined them.

  • Comment number 89.

    On a more serious note...................

    That fooled you !!!!!

    Throughout life I have always tried to put myself in other peoples shoes in order to put alternative shoes on.

    This theory always fell down with high heels.

    However, if I was the British government I would............................................

    On the road again, looking forward to.....................................

  • Comment number 90.

    UK borrowing levels as mentioned by others here are low compared to a lot of developed countries so there is room.

    No, of course we dont like borrowing especially in this climate, but Robert, whats the answer?

    Unfortunatley you are right lower tax revenues and higher Govt spending (on dole payments etc.,) if the cupboard is bare, the people out of work cannot feed their families - I am afraid the cash has to come from somewhere.

    Also, if govt borrows for capital spending, thats not a bad thing as it sustains the economy and also creates assets - sort of ''asset backed finance'' lol!!

    It has to be done and thats it. There is no magic wand for cash! If we aint got it - we have to get it (or starve) ''end of''.

  • Comment number 91.

    Of course another option that would maintain standards of living.......


    Import restrictions, high tariffs on imports from outside of Europe.

    This would reduce the need for pay cuts for manufacturing workers.

    As the manufacturers would be competing on a more level playing field.

    IE not competing with artificially disadvantageous exchange rates.

    Afterall how much does a pound of Rice cost in the UK?

    How much in China ?

    How many Yuan do you get for a Pound?

    So Uk Rice Pounds buy more Rice in China than in the Uk, therefore in Rice terms the Uk Pound is overvalued.

    This problem of faulty exchange rates leads to huge disadvantages for UK manufacturers, but huge advantages for any one with a pile of Sterling as cash!


    You do not need to be a genius to work this out.










  • Comment number 92.

    The markets have a strange possibly unfounded confidence in Housebuilders today......

  • Comment number 93.

    I used to think if I had a TARDIS how nice it would be to go back in time and buy a Lottery ticket.

    Unfortunately as most of the companies I would have invested in have gone phutt!

    I would probably be back to square one by now !

    Still, be able to have some nice holidays with a TARDIS........

  • Comment number 94.

    TARDIS

    Transdimensional campervan.

    I like Campervans soemthing very 60's about them.

  • Comment number 95.

    Hi Rob,

    Economics 101 lesson for the Treasury. and Mr Darling.

    Money Supply and Inflation:

    What happens then the number of goods available on the market contracts (demand drops) but the amount of money chasing this new limited supply of goods (ie an increase in public spending) increases?

    Answer: Inflation. But in this case the money supply is going to be so distorted that the result is most likely hyperinflation. Clearly the braniacs at the Treasury know nothing about inflation, or they simply choose to ignore this problem.

  • Comment number 96.

    As a Director of a business, of you knowingly take on debt you cannot pay in the "normal course of trade", you are potentailly committing illegal acts.

    Mr Brown, any ideas on how you will pay it. UK plc is a credit risk now, so you will soon have to pay your overdraft back (ouf of your control), and your credit risk is increasing.

    If you can't repay, someone will want your assets back - quickly. Please give them those you have recklessly pawned off, not mine which I have saved and paid for.

    Failure to either hit your budget, deliver customer satisfaction and not foresee major market change are normally good reasons to change the Chief Exec in the real world

  • Comment number 97.

    84:

    I fully agree with you supercalmdown on this. Essentially the policy choices are those you mentioned and those are the constraints.

    This is why from policy point of view the current crisis is not at all complicated (while rather intricate from an academic point of view). Once the decision is made (if it is made openly and clearly) the rest fall in their place.

  • Comment number 98.

    This is nowhere near as bad as it appears, nor is it as worthy a story as it appears. Please remember that the British government is now a major shareholder in some of the world's largest and (usually) most profitable banks. We can simply raise the funds to repay the additional borrowing when we come to sell off those shares.

    The answer is very simple. The real question should be 'when do we intervene and start pumping vast quantities of public money into the economy in order to get it working again?' That is the problem. If it goes in now, it will simply be swallowed up. We need to wait until the economy is ready to turn around, then inject the cash.

  • Comment number 99.

    95:

    Fisher's equation on this works only ex-post and not ex-ante, because every element of the equation is conditioned (context dependent).

    But I agree that the current crisis management is likely to fuel inflation, but not because of the money supply per se.

  • Comment number 100.

    This Chancellor, to quote a notable phrase used by General Montgomery, is "100 percent useless and 100 percent wet"

    I say this because I listened to him this morning on Radio 4's Today Programme struggling to put into constructive English precisely what was meant by his requirement for the banks to whom he has given Govt funding must return to their 2007 levels of borrowing to business.
    HOWEVER
    He added that 'of course' (as he likes to say) it would be 'daft' (sic) to lend to firms who are in trouble; ergo only the firms with robust order books are going to 'get past the front door of the banks'

    This man and his followers (thye be many..) belongs in a toy factory not at the head of a Western industrialised country.

    Figure it out.

    How many firms who WERE robust and profitable up to 2007 are now NOT entirely because of the recessionary mess we're all in?

    Wet because it's a complete cop out to stop his precious succour to the collapsing banks from being burned to ashes by incurring further 'risky' liabilities.
    Useless because it's obvious that the firms who suffered most over the last 6 months or so are the very ones, who by demonstrable track record of profitable trading for X many years are the VERY ones most likely to need reassurance and financial support - right from the top.

    What the heck was the point of supporting those particular banks AT ALL?

    Consider this, Chancellor:

    For 10 years business has been assured beyond reasonable doubt that the basis of UK Govt economic policy was "STABLE MACROECONOMICS". Brown virtually invented the phrase! I have a letter in my desk from HM Treasury from 2007 STATING EXACTLY THAT and moreover stating that stable macroeconomics were the the overriding consideration in ALL Govt domestic economic policy.

    SO!

    In short summary, as if it wasn't obvious enough. If a firm is in real cashflow trouble today, who's fault is it? Modest examination of their P&L by year will show who's business has been performing PERFECTLY and meeting all its liabilities until now.

    Sudden collapse of sales in the 3rd qtr of this year, as many of us in business know - can hardly be described as anything less than coincidence.

    This spineless and escapist behaviour will haunt the Chancellor and the whole of the Labour party increasingly in the days to come.


    GC

 

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