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Gilts shock

Robert Peston | 13:41 UK time, Wednesday, 22 April 2009

Gilt sales this year are forecast to be £220bn - way above all market forecasts.

There will be a big gulp from investors.

Why is the Treasury's borrowing need so much greater than was expected?

Well, the cost of bailing out the banking system appears to have been greater than expected.

I'm not surprised that sterling is now falling.

Questions will also be asked again about whether the UK will retain its AAA credit rating. If that were lost, the cost of selling all this debt would rise.

And then there will be the emotional reaction of bankers to the news that their take-home pay is being cut significantly by the new 50% top rate of tax and a reduction in relief on pension contributions for high earners.

There'll be gloom in the City tonight.

UPDATE, 14:10: Guess which single policy measure announced in the Budget represents the biggest single drain on resources and the largest individual stimulus measure in the current difficult year?

budget2009_commons226.jpgNot help for low earners.

Not support for pensioners.

Not support for the young unemployed.

Actually, it's the increase to 40% in tax relief to businesses on capital spending, for one year only - which is forecast to cost £1.64bn.

In fact, support for business in the current year looks pretty substantial. The total cost of deferring business rate payments, the car scrappage scheme, a fund for investing in young start-up companies, and various other smaller initiatives is over £3.3bn.

So although business leaders will hate the new top rate of tax, their chagrin may be tempered by the succour their companies are being offered.

UPDATE, 17:35: I haven't written much about one element of what I said early this morning I would be keeping an eye on, namely the credibility of the chancellor's growth forecasts.

That's because Stephanie Flanders has been highlighting all the reasons why the Treasury's expectations of a pretty sharp economic recovery may be far too optimistic.

If growth turns out over months and years to be even a bit lower than the Treasury expects - and many economists expect growth to be significantly lower - that would imply that the government will be borrowing even more, the public-sector debt will approach 100% of national income and it'll take even longer than seven years for debt as a proportion of GDP to start falling again.

Yuk and yikes.


Page 1 of 2

  • Comment number 1.

    Peter. The countries' wealthmakers will have been expecting a populist move like this and will have made their plans accordingly.

  • Comment number 2.

    The thought of all those bankers crying has temporarily lifted a bit of gloom from me.
    Why shouldn't the top 10% of earners (before you ask, I am one) dig a little deeper at a time like this? Surely they are not solely motivated by the love of money?

  • Comment number 3.

    Robert, not many bankers are going to be getting over £150k this year. After all the Government pays many of their wages now!

    As for the shock, it will get worse as the city digests that fact that the predicitons of growth are truly heroic. Now that the government has blown its credibility, the markets will push for a higher return for any lending.

    The truth would have been better, but labour can't/won't do truth.

  • Comment number 4.

    Watch the markets tank, we're in loony tunes territory!

  • Comment number 5.

    There was some tough-sounding noises from A.D. about forthcoming regulation which I suspect may not lighten their gloom.

    We'll see if it actually amounts to anything worth talking about.

  • Comment number 6.


    Robert, how about some analysis of these gilts forcast,versus Darling's extraordinary confidence regarding growth, this year and for the next two?

  • Comment number 7.

    "Why is the Treasury's borrowing need so much greater than was expected? "

    Because despite the Government's attempt at IMF Suppression, the Cat is well and truly out of the proverbial Bag..

  • Comment number 8.

    We are screwed!!!

    Rising unemployment,

    Falling asset values,

    and soon, coming to uk plc soon

    Rising Interest rates, we are in Soooooo much trouble and we have no industirial capacity or oil to beil us out.

    We will be in the Euro soon, mark my words.

  • Comment number 9.

    Personally, the Chancellor's tax hike is pure tokenism to please the Left of the party. It only affects 1% of earners, many of those will doubtless find ways of avoiding the extra tax. If he had been serious about raising substantial extra revenue he would have started the 50% rate at £100k instead.

  • Comment number 10.

    So the question is, who's gonna buy all that debt ?

    Surely if the credit ratings agencies downgrade then there is no way that borrowing can take place.

    I doubt very much that Darlings budget is going to be the final word on government borrowing this year. I reckon the IMF are going to have something to say as well.

  • Comment number 11.

    The UK is well and truly up to our necks in the brown stuff and this lot are STILL digging - it beggars belief.
    ZanuLabour WILL be extinct after 2010 - thank GOD.

  • Comment number 12.

    There'll be gloom in the City tonight? Good. (I know, I'll take the hit.)

  • Comment number 13.

    what about unemployed people over 25?

  • Comment number 14.

    "And then there will be the emotional reaction of bankers to the news that their take-home pay is being cut significantly by the new 50% top rate of tax and a reduction in relief on pension contributions for high earners."

    Bob please be sentitive to the large proportion of individuals covered by your "bankers" description who do not earn anywhere near the salary bands quoted many of whom will lose there jobs in the coming months. Folk who work on the counters and the backroom admin staff.

    I have no sympathy with the increase in the tax band and pension restrictions for the rich, however, in terms of employment descriptions this is going to affect alot more people not even in the banking fraternity.

    Apology please.

    No one

  • Comment number 15.

    Got to love the IMF's timing. First they withdraw the statement that the UK bank bailout estimate is far higher, leading to sighs of relief from the government and a chorus of 'we are right' from Ministers, then, as soon as the budget speech is finished, they weigh in with a revised statement that UK economy will shrink by 4.1% - far worse than Darlings latest variable.
    Hilarious. Next we'll find out that the car scrap scheme isn't half as good as it is supposed to be.......

  • Comment number 16.

    We need some immediate way to get things in balance. Instead of borrowing we need all public sector workers earning more than the median wage (including me) to have a pay cut to the median wage plus a percentage of the difference such that the books balance.

  • Comment number 17.

    Can you explain how we are going to get any growth in the near or long term? Our economy was service based largely around Financial Services. What chance is there of any growth in this area in the short term??

  • Comment number 18.

    There'll be gloom in the City tonight.


    Tough, they got us into this mess.

  • Comment number 19.

    I have to say I like the increase in the amount we can put into ISIAs. Or though it should have been for everybody; kids are saving hard for deposits and until they have them they will not be able to buy a house.

  • Comment number 20.

    Bob, any comment on the government's GBP 2,000 car scrapping deal actually only being GBP 1,000 with the dealer / manufacturer having to foot the other half?

  • Comment number 21.

    Sorry Robert - did I hear correctly? Another forecast gone wrong?

    It seems the Government is leading by example - if your numbers look bad - then simply make some up with creative accounting. As long as the recovery comes before the people find out - you'll be ok.

    Question is - who taught who, did the banks teach the Governemnt this trick or vice versa?

    Why don't they stop making them - they only seem to make the problem worse.

    How about a big 'I have no idea' from the Government - then at least we're getting more realistic.

    They say bear market bounces last about 30 days - and today was day 31 of this latest bounce.

    Credit gone
    Credibility gone
    Credence gone

    Next week - tips on how to get the maximum heat return for your burning money.

  • Comment number 22.

    Well, the new budget is out and I don't see many in the street with smiles on their faces. In fact, I have just come off Tiscali internet and everyone seems to be calling for the heads of this government. Who can blame them? Darlings smug smile behind the 'red box' and our unvoted for PM, the same. I hear premium bond winnings have been halved along the way - did anyone know this was happening? This government tweeks the little perks away from the public without making effective decisions for the economy.
    Hard decisions need to be made and rightly - this government really needs to sort its own house, show some real empathy for the voters whose lives they are so disasterously affecting and get with it for Britain!

  • Comment number 23.

    ...and on the subject of forecasts - how can Darling (or nayone else for that matter) predict the end of the recession when the job losses are still going on?

    Only an idiot could believe that 'signs of recovery' are seperate from the employment market.

    There is a lag between loosing your job and going bankrupt (or IVA) - the latter likely to create the next banking crisis.

    However if you listen to some of the 'experts' you could believe that the country can still grow productively whilst we're all sitting on the dole queue!
    Sounds like utopia then - shame it's a load of nonsense. Oh how the contradictions of Capitalism are hideously exposed at times like these.

    The chickens have really come home to roost for politics - they have finally convinced themselves that they can solve these contradictions with some spin.

    Lets just hope that the Government doesn't need to 'crack down' on all the 'non-believers' like myself by calling me a terrorist and forcing me to confess whilst making me think I'm drowning.

  • Comment number 24.

    "Gilts shock..."

    No HMG, will fail to sell it debts unless it becomes willing to pay a far higher risk premium/yield. See the last sale - you ain't seen nufing yet!

    This will force interest rates up - totally out of the control of the Bank of England and this may not be a bad thing as they are incompetent and rates should be higher now however the failure of gilts sales and the credit downgrading will force rates even higher than they need to be. (The same men who gave us the credit crunch are STILL running the Bank. They were wrong for the past fifteen years and are wrong NOW and they MUST go.)

  • Comment number 25.

    Darlings were all stuffed... Confidence will not return till we get people to run this country who are honest, trusted and can count.

  • Comment number 26.

    Help for big business, failing business and hi tech companies that haven't been created yet but no help at all for small companies who have seen profits eroded but are still keeping their head above water. Increased allowances for capital investment don't help these companies, they are struggling to trade day to day, they can't afford capital investment in todays climate.

    It's all very well bailing out unsuccessful and nonexistent businesses but we need help for the hundreds of thousands of very small companies that employ one, two, three or four employees.

  • Comment number 27.

    #11. ronreagan wrote:

    "ZanuLabour WILL be extinct after 2010 - thank GOD."

    However you should remember that ZanuTory were the originators of the economic policy and regulation philosophy that got us where we are today!

    Worship the Liberals? (Let us dig up Lloyd George!)

  • Comment number 28.

    What shocked me the most was the smug smirks that Brown and Darling (but mostly Brown) had on their faces when Cameron was responding to their budget. Do they really think this is in some way funny? If I had presented that budget I would have been hanging my head in shame, not smirking and laughing. Cameron made a lot of valid points (in a sometimes theatrical manner)but those two clowns just sat there and smirked like they were being told off by teacher. The only time Brown seemed to react was when Cameron quoted a minister as likening a trip to the IMF as being like respite care. He turned to his left and clearly asked "who said that". Smirk off. Let the witch hunt commence. Typical.

    This government is finished and they need to go a.s.a.p.

  • Comment number 29.

    to be honest, when you are over the 150k level, the 10% extra tax is not going to significantly cause hardship. You should try living off JSA !!

  • Comment number 30.

    An American oil company invented "Enron style" accounting practices. The British Chancellor of the Exchequer has now invented "Enron style" budgetting!

    I really cannot see the markets staying convinced about buying UK Government gilts on the terms offered, the vast quantities involved or HMG actually maintaining its AAA credit rating. I presume that the borrowing need is because the spending decisions: on ID cards; new Trident nuke subs and misssiles; new aircraft carriers; 50 new Euro fighter Typhoons are non-negotiable (no exit clauses without hefty compensation). Shambolic.

  • Comment number 31.

    Whilst I am on the subject of lies, damned lies and the Capitalist system.

    What's wrong with this BBC headline?
    "Unemployment rises by 177,000 in the UK, although the number of people claiming jobless benefits is lower than expected"

    What they actually mean is the number of people claiming has NOT RISEN AS FAST AS EXPECTED.

    Which is not what this headline says.

    It's confirmed within the story by this piece
    "The number of people claiming jobless benefits rose a smaller than expected 73,700 last month to 1.46 million. "

    Is it any wonder we're drowning in a sea of lies - at a time when truth is so badly needed.

    The Government lies
    The Media lie
    Businesses lie

    Eventually we will be in a 'trust no-one' world and considering our Economy is totally based on trust (I PROMISE to pay the bearer on demand) - this is not a good thing.

    Still - there are obviously still enough people out there who put their faith blindly in Government and the system. Maybe they will change their minds when they're unemployed and homeless next year.

  • Comment number 32.

    Sterling has already started to tank. Down to 1.44 against the dollar and the US Markets have only just opened.

    How can anyone seriously believe figures given by this Government on growth in 2010 and then 2011. We shall be lucky to even flat line by end 2010 and paying all this money back at HIGHER INTEREST RATES will cripple serious growth for another decade.

    This budget forecast is not credible without REAL cuts in the Public Sector a cut of at least 10% in the Public Sector Employment, a freeze on all Public Sector wages, stop all Public Sector final salary schemes and balance up fairly with the PRIVATE SECTOR which is taking all the pain. How about NO DAILY allowances at all for MPS and them to simply live on salary like everyone else lucky enough to have a job.

    There is no way back now for LABOUR and they have to go, possibly for a Generation. No more "Boom and Bust " Brown can return to his homeland and write his wondrous memoirs. What a shower of complete incompetants, you could not make this up. Labour has accelerated borrowing to this level to hide the fact that they refuse to take the AXE to their Bloated State Payroll and Pension System, which is now running out of control

  • Comment number 33.

    #26 U2375710

    The reason the budget has once again ignored small business is because you don't have a 'forum' of 'cross party' discussion that you sponsor so that Government 'decisions' are made 'in your favour'.

    This is the corrupting foul stench of Politics in this country. Big business runs this country for it's own gains and it doesn't care less about small business - they are merely in their way of maximising profit.

    Did anyone else know that the Governemnt 'TOOK ADVICE' from various 'BANKS' which included CITIGROUP in the construction of this budget.

    Yes - you heard it right - they took advice from the clowns who assisted in creating this mess.

    ....oh and yes we (tax payer) paid for it - although the sum was not disclosed (which to me it means it was either embarrassingly big, or embarrassingly small - you decide)

  • Comment number 34.

    #29 zebedee

    ...oh don't worry - we will all be trying that soon...

  • Comment number 35.

    I don't think Mr Brown and his Darling care much about the content of this budget. The sole intention has been to leave the time bomb ticking for the next administration. They must know that they will be in opposition some time soon. Perhaps this is why they smirk so.

    And can anyone explain to me why buying new cars is considered the solution to kick starting the economy. I thought it was personal debt and toxic credit that got us into this mess in the first place.

  • Comment number 36.

    "29. At 3:09pm on 22 Apr 2009, zebbdee wrote:
    to be honest, when you are over the 150k level, the 10% extra tax is not going to significantly cause hardship. You should try living off JSA !!"

    I did try living on unemployment benefit (for about 4 months, 20 years ago). Didn't like it, got a job.

    You could always try doing the same.

  • Comment number 37.

    I am waiting for the usual laws of unintended consequences to kick in. I dread to think what the increased amount of guilt auctions will do.

    On a lighter note, I am glad that the government are backing their natural partners, the back street second hand car dealers. That old £50 just for scrap banger will be marked up to £250. Some people when buying a new car are just too shy to ask for the currently easily achievable discounts off list price. They'll be rushing out to get the old banger to claim their £2000 guarantee trade in. Then again I can see the price of newer second hand cars being depressed. The rule of unintended consequences kicking in yet again...

    I'll make my own judgement on the budget in the next few weeks when I've managed to finally work out what skullduggery the Chancellor has been up to. Of course by then I suspect many of the initiative announcements to have bitten the dust and just been quietly dropped. Why am I feeling so cynical today? - I suspect it has been many years of conditioning. I am not a big fan of offal, and to be quite honest I'm sick of being fed tripe at this time every year.

  • Comment number 38.

    Creative accounting is an understatement when it comes to this budget.

    I've seen some ludicrous business plans but this takes the biscuit.

    Look at the borrowing throw in a few extras and design the growth forecasts to fit. Never mind they are total fantasy as long as it balances. Time they threw all their models into the dustbin.

    Can't talk the economy down. We don't have to. This lot will make sure it's shot to bits before they hand over to the luckless souls who will really have to sort it out.

    In the meantime it looks as if Brown and Darling will still have sufficient time to throw more of their kamakazi shots at it before they go.

    Then they tell us how good they are for taxing the rich. Won't be many of them left anyway by the time they are finished.

  • Comment number 39.

    The car scrappage initiative is £1000 from the Government and £1000 from the industry. Hence, dealers will reduce the strong discount on new cars by £1000 and the net saving to the punter will be just the Govt's £1K.

  • Comment number 40.

    Pretty good budget.

    The less generous tax breaks for those who least need it have been toned down. A modest income tax rise for the less than one per cent of the population. The usual booze/fags/petrol rises.

    An increase in tax-free savings allowance. Generous help to businesses. £1.4bn to green initiatives. £750m to hi-tech manufacturing.

    Pretty good budget.

  • Comment number 41.


    YOU are an idiot, read his post again!!!

  • Comment number 42.

    The Government are living in a dream world.
    What if their predictions about the future of the economy are grossly incorrect...( bet you they are wrong)
    Being positive is a good thing..but the Government are just living on dreams..
    How are they going to sell all those Gilts ..Would you buy any??.
    Mr Darling.. news for you, UK PLC is nearly bankrupt ..

  • Comment number 43.

    The government need to take the bad medicine now not put them off unpopular measures till 2010/ 2011 with an election in mind.
    Cutting out waste they say? Why don't they start at home ,why do we need 695 MP's , needs restructuring by reducing the number to 400.
    Car scrapping scheme should be on the basis that the new car you buy will directly help UK Car manufacture.
    The level of Government debt is incredibly frightening,( 79% of GDP in 2013/14).
    All benefits need means testing. If the current Government were more honest and explained the need to take immediate hard decisions they might have restored some credibility.
    Its too late now for them to cancel the Olympics!

  • Comment number 44.

    #32 Johnnyzero66

    I presume you are talking about these nonsense forecasts:

    • Economy forecast to shrink 3.5% in 2009

    • Growth expected to pick up in 2010, expanding by 1.25%.

    • Economy to grow by 3.5% annually from 2011

    So just to make this clear to everyone - fast decelleration this year followed by rapid accelleration next year and even faster the year after that.

    Will comeone from the Government please re-read the laws of dynamics and explain how you stop a reversing flywheel and make it accellerate in the other direction wihtout loosing your hands!

    They aren't just re-writing the laws of Economics, they're re-writing the laws of dynamics!!!

  • Comment number 45.

    The British electorate is more or less sleep walking towards as long as a decade of much higher taxes and reduced public services as a direct consequences of the Labour governments irresponsible management of the UK economy over at least the past 5 years, as the government has sought to change the rules in the face of failing to meet its own fiscal and budgetary targets that have now been altogether abandoned in the wake of the bankruptcy of the financial sector.

  • Comment number 46.

    43 Andy-Cole
    The sad fact about restructuring parliament is that no party would agree to it without trying to ensure that they ended up in a better position. It's a wider malaise where no politician seems to be able to put good of the country above good of the party.
    One other thing though - how many 'ministers' are there now - and how many 'special assistants and advisers' to No 10? I'm betting that we could do without most of them.

  • Comment number 47.

    ...oh yes ANDYC55?

    Are you one of these narrow minded NIMBY's who think everyone who is on the dole is a scrounger?

    Is that because when the crisis comes it's easier for you to blame the passengers on the bus (the unemployed) and not the people who drive it (the Government)?

    Clearly you are too young to remeber the 80's when no matter how much you desired a job - you would struggle to get one.

    ...or maybe you think we should go back to victorian values where I can pay a child threepunce a day for risking his life cleaning my chimney? - after all - it's a job isn't it?

    I have a job and I have been working for the last 15 years straight - however I am not so arrogant to think that people on the dole are there by choice.

    Can't wait to see you crying your eyes out at the job centre next summer when you realise that you have been shafted by your Government.

    People like you make me embarrassed to call myself 'human'.

  • Comment number 48.

    Sounds great.

    There is currently about a 3% yield on 10 year government bonds, so now is clearly the time for the government to borrow. Later on, when inflation takes hold and interest rates go through the roof, the government can buy its guilts back, quite possibly for a lot less than it sold them for...

  • Comment number 49.

    Pensions adjustment well overdue!! For years the higher paid have effectively had the benefit of providing for a pension which on a net basis was costing less than the lower paid. That's not grossly unfair to the lower's plain ridiculous

  • Comment number 50.

    This bear with little brain thought that quantitative easing involved the Bank of England buying back gilts to put liquidity into the banking system. Now it seems the Bank has to sell £220bn gilts to enable the govt. debt to balance. Who is going to buy them and at what price (interest rate).Presumably no financial institution in this country has any available cash so it must be the Middle East and Chinese authorities. In other words this country is being sold off to others. And how is the govt. going to pay the interest - 5% of £220 bn is £11bn p.a. just on this years offering.Where will the £sterling go now.Dread to think.

  • Comment number 51.

    The Horrible Rich - To get a decent house for your family to live in in a decent area then you would be doing well to get a house for 300,000. Monthly payments on this at 5 percent are 1,980 per month or 23,700 per year for 20 years, add on 2,000 for annual rates and you get 25,700. To earn this you need to have a gross salary of 35,000 - This is before you have bought a box of cornflakes or switched a light on. The higher tate tax band starts at 37,400 - so when the poor look at their income and say : we are poor lets tax the rich - remember to factor in the free/discounted housing you are in and remember every 1 pound pay rise you have you see 70 pence of it wheras the rich see will be lucky to see 50 pence of it.

  • Comment number 52.

    This was a political budget, designed to win an election, not to get us out of a hole. And in that respect, it probably did as good a job as anyone could expect.

    The great British public don't really understand about government debt or the consequences of it. What they'll see and hear is that things don';t seemed to have changed all that much. If anything slightly for the better. If they're jobless they can expect training and help with the mortgage. If they're pensioners, they get a heating payment and a tiny bit more on the pension. If they want to save, they'll get all of £42 a year, (if they can find an ISA that pays 3%) on the extra £1400 cash they're allowed to put in. If they want a new car, there's even money for that. There are no huge cuts apparently. The gvt seems to be investing more left right and centre. And no worries cos the so-called, newly demonised 'rich' are going to pay for it all. I reckon it's enough to give them a reasonable shot at an election, especially as Cameron didn't really muster much apart from going on and on about the debt. And he was skewered by the 50% tax. Does he repeal - in which case he's just the rich toff we all suspected - or stick with it and alientate a lot of his own people? People will onnly care about the country's debt when it personally affects them - when they too are patying more in tax or losing srvices or both. Till then, if the gvt says we're OK and wants to keep paying out, who are they to object.

  • Comment number 53.

    I have defended this government on this blog through thick and thin....but this tax rise is barmy.....there are lots of successful professionals earning over 100k because they wotk very hard and do extra work...this is a complete disincentive to do anything more than the bare minimum.
    I am expecting this silly move to be revised quickly as it is an election loser if ever there was one.....Labour have just thrown away any support from successful people who are influential and make a difference.
    And I think that Darling has blown it for his party for good and why Gordon Brown listened to him is beyond belief.
    50% added to superannuation in the public sector of 22.5% and adding national insurance and removing personal utterly foolish and ridiculous.
    Anyone who had any cash in UK has lost it through shares collapses, property colapses,endowmnent failures,pension collapses,unemployment, savings interest collapses, and now tax assault.
    It is wake up time Gordon, this was a very ,very poor budget and has finally blown Labour's chances of being re-elected....and that makes me sad because I really did believe that Labour believed in encouraging people to do well.

  • Comment number 54.

    We are looking to pay 6 Billion per year net into the EU over then next few years. i.e. we are asking/telling our elderly to work till they drop to fund the Spanish and French governments to pay their young fit teachers to spend 13 weeks lying on a beach every year !

  • Comment number 55.

    Gilt sales this year are forecast to be way above all market forecasts. I have been saying for months on this blog that government debt is huge in comparison with what is peddled to us by disreputable politicians. By 2011 who on earth will be prepared to buy the gilts that even on the Chancellor's most optimistic forecast will have to be sold?

  • Comment number 56.

    Can somebody (Robert?) explain to me the scenario from 2010/2011 onwards when Darling's growth forecasts are proved to have been fantastic and things start to unravel quickly.

    What happens in practice as it affects me, the bloke on the street?

  • Comment number 57.

    well well well we are well and truly in the sticky stuff now 2p on a litre of fuel will just make every thing more expensive but of course this will not bother AD as he will no doubt claim it on expenses but to people like like my parner who has all ready had to take short time working it just means more belt tightening good old labour can not wait for 2010 so we can chuck them on the scrap heap

  • Comment number 58.

    # 44 Exactly my sentiment

    A great analogy. How does a Government reverse a rapid spinning negative flywheel suddenly in 2010 to make it all rosy for growth?

    Their whole Budget is just not credible and they have made little attempt to make it so. Darling has thrown in the towel and knows this is all WAY, WAY above his ability to solve.

  • Comment number 59.

    53 Onward Ho LOL, RALMFAO Mate Belter!

  • Comment number 60.

    Got sent this the other day and it seems appropriate to post it. I'm not sure if it tells you more about human nature or the tax system, but anyhow....(i'm not a higher or potential higher rate tax payer by the way!)


    Suppose that every day, ten men go out for beer and the bill for all ten comes to £100.

    If they paid their bill the way we pay our taxes, it would go something like this:

    The first four men (the poorest) would pay nothing.
    The fifth would pay £1.
    The sixth would pay £3.
    The seventh would pay £7.
    The eighth would pay £12.
    The ninth would pay £18.
    The tenth man (the richest) would pay £59.

    So, that's what they decided to do. The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve. 'Since you are all such good customers,' he said, 'I'm going to reduce the cost of your daily beer by £20.'

    Drinks for the ten now cost just £80. The group still wanted to pay their bill the way we pay our taxes so the first four men were unaffected. They would still drink for free. But what about the other six men - the paying customers? How could they divide the £20 windfall so that everyone would get his 'fair share?' They realized that £20 divided by six is £3.33. But if they subtracted that from everyone's share, then the fifth man and the sixth man would each end up being paid to drink his beer. So, the bar owner suggested that it would be fair to reduce each man's bill by roughly the same amount, and he proceeded to work out the amounts each should pay.And so:

    The fifth man, like the first four, now paid nothing (100% savings).
    The sixth now paid £2 instead of £3 (33%savings).
    The seventh now pay £5 instead of £7 (28%savings).
    The eighth now paid £9 instead of £12 (25% savings).
    The ninth now paid £14 instead of £18 (22% savings).
    The tenth now paid £49 instead of £59 (16% savings).

    Each of the six was better off than before. And the first four continued to drink for free. But once outside the restaurant, the men began to compare their savings. 'I only got a pound out of the £20,'declared the sixth man. He pointed to the tenth man, 'but he got £10!' 'Yes, that's right,' exclaimed the fifth man. 'I only saved a pound, too. It's unfair that he got ten times more than I did' 'That's true!!' shouted the seventh man. 'Why should he get £10 back when I got only two? The wealthy get all the breaks' 'Wait a minute,' yelled the first four men in unison. 'We didn't get anything at all. The system exploits the poor'. The nine men surrounded the tenth and beat him up. The next night the tenth man didn't show up for drinks, so the nine sat down and had beers without him. But when it came time to pay the bill, they discovered something important. They didn't have enough money between all of them for even half of the bill. And that, ladies and gentlemen, journalists and college professors, is how our tax system works. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start drinking overseas where the atmosphere is somewhat friendlier.

    David R. Kamerschen, Ph.D.Professor of Economics

  • Comment number 61.

    Nevermind everyone, the 2012 olympics will give us all a national boost just when we are well on the way to recovery according to Alaister and we will be able to showcase our nations success to the world....


  • Comment number 62.

    #53 onward ho

    Don't worry as there are others who are also feeling very much let down by Brown and Co. - more and more each day!

  • Comment number 63.

    The only sensible thing this government can do now is call an election.
    They are so far from understanding the scale of the task they have to deal with, they have to go. They have caused the mess, by their inability to see the downward trends early enough, and the inflated borrowing practices, which they encouraged, egged on by their heroes the city bankers.
    Well the time has come to pay for their stupidity; unfortunately it is the ordinary tax payer that is picking up the bill.
    What a shower of self serving money grabbers they are. We can't afford to wait until 2010 to start reining in the excess in the public sector we have to start now so for all our sakes they have to call the election and be gone.

  • Comment number 64.

    Brown has run out of ideas and is following the pattern of his buddy Obama by going after the top 10%.

  • Comment number 65.

    It's clear that in these times you find out much more about people - and I don't know whether the financial calamity or the contents of many of these posts is more depressing.

    This Government has been on a huge investment programme into schools, prisons, hostpitals, and assorted light public build works, in addition to substatial investment in infrastructure. Much of this was necessary because it inherited a (literally) crumbling building stock from the previous Tory administration.

    Labour has been, along with most of the rest of the governments in the world, outplayed by rabid Capitalist business and caught with its pants not even on. The financial system was allowed to become critically unbalanced to the point of collapse, and NObody was questioning the status quo while wealth seemed to be universally increasing.

    Please stop to think before trotting out the tired old mantra of the tabloid newspapers.

    If you really think a Tory government is the last bastion of integrity and good fiscal management... really? I'm not that old, but I clearly remember the shambles of the last lot.

    If you're going to criticise Labour, at least do it for the right reasons:

    Lack of transparency with the figures - Labour you have cried wolf one too many times now, your official numbers have no credibility and it's time to treat the electorate as adults. Too much to ask? The patient wants to know what the real prognosis is here.

    Lack of integrity - it is disgraceful for a left-wing government to have its MPs snouts in the trough to the extent they are. Go and hang your heads in shame, really. I'm disgusted when you see the bitter contrast of good people who've done nothing wrong facing meltdown. You should give your second houses etc., paid for by taxpayers, to the poor you have let down.

    Administration - your procurement systems are a shambles; the promised capital lifelines are NOT getting out to market anywhere near quickly enough, and many people and businesses will go under because of it. Local government is inept, with commonly poor management and underfunding.

    Lack of strategy - historic times call for Big Ideas: where are they? It seems to me all your efforts are to remain in power. For what purpose? (Probably so you can all keep your nice ministerial perks). People need inspiration and hope and all you're giving is smoke and mirrors for self preservation.

    I love this country, and there are so many wonderful people here. It's hard to believe in it though when so many things seem driven by self-interest, compression/aggression and unsustainable short-termism.

  • Comment number 66.

    So, the government is predicting "growth" again from 2010. Does this mean that per capta, we will be consuming more food, goods etc? What about the rest of the world?

    If true, then surely it just advances the point where civilisation collapses, because the human population has become to big for the planet to support? Unless we plan for sustainable consumption and a sustainable population, war and disease will wipe out much of the human race. Anything else is fiddling while the planet burns.

    How many people will live in Britain in 100 years time do you think? My guess is 20million at most.

  • Comment number 67.

    I simply cannot fit £175 billion borrowing into my head. It's just so staggering. And next year. And then was it a mere £90 billion. Surely the axe must come somewhere. Pet projects. Even aircraft carriers. Refit the current ones to last out 5 more years. There just seems no real attempt to cut costs - the first thing one does when money is tight.

  • Comment number 68.

    Apart from Cameron's speech I get no sense of crisis from this Budget. The country is going broke and they stick tuppence on petrol. What is going on?

    Just what is the mind-set of the government? Oh dearie me, we have broken the economy, never mind something will turn up!

    It is business as usual; another day at the office. Their lives are so tedious and dull!

    What about the unemployed? Another training scheme to put three pin plugs on the electric cars the rich would have bought if they hadn't left the country to launder their money in Malaysia.

    Time for an election.

  • Comment number 69.

    #65 - A good sensible post - well done.

    Also 67 - I think I would suggest remodelling a favourite saying of mine - look after the millions and the billions will take care of themselves!

  • Comment number 70.

    A lot of the U.K's Problems are know down to lack of confidence the World is starting to see through the clowns in charge of our economy the government put all its egg's in the Financial services industry then it stood back and let them do a Ratners on there Business, they have ruined the name's of many of the City's Banks and investment firms, I fear it will take a great deal of time for reputations to recover from the shady deals a good name is hard to get back

    The Pound is know falling against the Worlds currency's

  • Comment number 71.

    Before people whinge on about the "successful" being penalised, ask what do you mean by successful? Does it mean helping this country feed, clothe, warm and house itself? That is, either by being productive, helping someone else be productive, or selling something abroad which helps pay for our import bill.

    In economic terms, nothing else matters. In human terms of course, we can try and make each others lives worth living too, but we shouldn't expect to be paid vast amounts for that.

  • Comment number 72.

    We have a housing crisis so all those brain drainers leaving will help this - we'll be able to squeeze in a few more from Calais to keep the Mayor there quiet.

  • Comment number 73.

    37. At 3:29pm on 22 Apr 2009, RobKirton wrote:
    I am waiting for the usual laws of unintended consequences to kick in. I dread to think what the increased amount of guilt auctions will do.
    I use mark-to-model for my guilt, mate, each time I pass by a charity mugger or dump a letter from some pleading charity in the bin I add a couple of quid to it.

    Goodness knows what'll happen next, maybe the "Glass Seagull" act that someone referred to it a previous post will fly over and put a minimum 35% deposit on my head!

  • Comment number 74.



  • Comment number 75.

    So, how will any of their actions actually improve Consumer spending and thusly Company Sales ?

    Oh actually, they won't increase Consumer spending.

    SO this means with the exception of certain Monster companies (like RBS was once) most UK businesses that rely on selling Consumer products and services domestically will face a continuous decline of Sales.

    Okay, so which Policy did they introduce that will aid Britain to Export more ?

    Oh dear !

  • Comment number 76.

    72. At 6:40pm on 22 Apr 2009, whatevernext1 wrote:
    We have a housing crisis so all those brain drainers leaving will help this - we'll be able to squeeze in a few more from Calais to keep the Mayor there quiet.
    Dead right mate. Let the rich go, it was the high IQ business-leader MBA worshipping twits that led us into this mess. Give me someone with instinct and a hungry belly anyday, whether they are from Mogador, Moscow or Mogadishu they are all more than welcome to come and replace the rats leaving this ship. We're not sunk yet!

  • Comment number 77.

    The productive part of the economy has been battered again, so no surprises. The measures listed are almost all minor and useless, while appearing to be what? Fair? To whom? Not to the private sector that has to prop up labour's constituency. To the poor? No, as the negative impact on investment will reduce the overall number of jobs available still further. To the owners of ten year old bangers? None can afford a new car, even at a £2,000 discount unless they borrow money: crazy.

    The worst of it is the quite absurd economic forecasts on which the scenario is being built. These forecasts are drug-induced (the IMF has already revealed its much more negative view) and not likely, let alone sustainable. The effect will be that we will borrow more than darling admits at, importantly, a much higher rate of interest as investors won't accept low rates on our government debt. This means sustained high taxes, higher costs of borrowing on mortgages and business loans. Thus, recovery will be much slower than it need be. Unemployment will stay higher much longer than necessary.

    All in all, a historically bad budget.

  • Comment number 78.

    All this talk of Deflation, I wonder if the Pundits actually consider it to be good ?

    Do they believe it to be real ?

    Personally I do not know anyone who believes that Prices are falling !

    If prices do fall, that will reduce Tax revenues further (not to mention costing more Jobs).

    My experience is that Prices are still rising.
    My Food bills are up by about Nine percent, not to mention Gas, Electricity, Petrol, Stamps, etc,etc,etc.

    If I were buying Electronic goods that might make a difference, but quite frankly how often does anyone buy a new Telly ?

    I have said before, our Economies are fundamentally based on selling Massmarket goods to Massmarket Consumers.

    Thats were the bulk of Profits are made by UK PLC.

    And thats where substantial amounts of previous years Taxes were generated. That aspect of UK PLC has run aground and (again) with the exception of one or two niche markets (such as Game) its going to decline as peoples disposable income falls.

  • Comment number 79.

    They will not shift that volume of gilts, no way, unless China fancies buying us out completely and running us as a dependent territory of the PRC.

    The only reason we are still AAA rated is because noboddy dare change it for the knock on impact it would have on the Uk and then the global economy if the UK went bust (which we are already by the way).

    The deception on Alaisters part in terms of growth was necesarry to make his proposals seem even remotely credible numerically.

    Genuine leadership (as oppose to this sleaze ridden grasping lot) would

    1) Stockpile essential needs for a period of 4 months

    2) Announce huge cuts in public services

    3) Announce changes in civil service pensions (they will have to change anyway)

    4)Announce emergency measures to ensure everyones basic needs are still met.

    5) Announce a general election

    Tick tock, tick tock

  • Comment number 80.

    #65 Here Here, Well directed and intresting points.

  • Comment number 81.


    "Watch the mkts tank!"

    so FT's up 1.08%

    Pound v Euro down 1.7% on the day, (range in last thee months over 8%)

    Pound v Dollar Down Whole 1.4% (range in last 3 months 15%)

    I'm shaking in my shoes.

    I wish the "I want any bad news as long as it means yet another Tory government made up entirely of Bankers and their friends to save us from the vile activities of...... the bankers and their friends.....oh.! "would go and count on their fingers elsewhere or get a good almanac that reveals various countries debt, employment, size of economy and a beginners book on feedback and margins.

    I'm sorry that 3 general elections were won by Labour (obviously because of the fraudulent votes of the 30 million illegal immigrants that they have personally ferried through Dover in the back of their ministerial Bentley Continental gt's) but please get over the idea that the Tories will do anything for you!

    Yes, get a thrill by looking at the huge numbers hanging over us and the world economy, but until you understand the dynamics, stick to worrying about the moon falling on your head.

    Its a bad recession, eat less, lose your house (Big Deal) rent somewhere, come back again or fail, just get on with it and stop whinging!

    The poor are the poor and will always be with us to a greater or lesser extent, the rest of us are o.k to a varying degree, maybe not as o.k as we'd hoped, but quite probably as o.k as we deserved to be.

  • Comment number 82.

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

  • Comment number 83.

    The government is expecting the world to buy our gilts to support a profligate economy. Why should China et al, unless they get a substantial risk premium?

    Many years ago, a general manager told me he always used the yardstick:

    If you were paying for it yourself, would you still buy it?

    Government should apply this to ALL public sector spending.

    Until this country accepts that NO PUBLIC SERVICES ARE FREE, we will lurch from crisis to crisis. This budget is just adding to the gravy-trainers. A little tinkering at the envy end of the spectrum does no real good; we need root and branch reform. All politicians should learn to accept life is not fair and trying to enforce fairness achieves nothing other than moving the goalposts.

    It certainly won't get intelligent buyers taking a depreciating asset that may even be in default in due course. Watch sterling, watch interest rates and watch inflation.

    If you have any sense watch it from another country.

  • Comment number 84.

    Let's be honest...the thought of fat cats of every description having their pips squeaked by the Chancellor is a very cheering thought for bedtime consideration.

  • Comment number 85.

    #78 i agree prices are going up all the time,all this talk about deflation is rubbish,everything that really matters goes up things that dont matter go down.we have a lame duck government that is hopeless, have no chance ,whatsoever ,of winning an can anybody take a government seriously when its own home secretary claims for a 0.88p bathroom plug!!!!if brown really wanted to help the public finances he would call and election and clear off so somebody else can start some sort of recovery.

  • Comment number 86.

    #81 Moncursalion-Monochrome!

    Why is it that you automatically assume that anyone who voices objection to this Govt - and their management over the economy - is a Tory supporter?

    I have been very critical toward the Govt on these blogs but I also don't feel the Tories could make any difference at this stage.

  • Comment number 87.

    Er...since when has unsympathetic chortling about more taxes for overpaid bankers, the incompetents who got us all in this atrocious financial mess in the first place - been a cause for referral to the moderators (my post 82)

  • Comment number 88.

    Parts of a well known song seems to have some resonance with me tonight:

    There may be trouble ahead.....

    Before the fiddlers have fled
    Before they ask us to pay the bill and while we still have the chance
    Let's face the music and dance.

    Soon we'll be without the moon, humming a different tune and then
    There may be teardrops to shed.....

  • Comment number 89.

    For Grumpyoldman58:

    "The countries' wealthmakers will have been expecting a populist move like this and will have made their plans accordingly"

    So we can expect all the top bankers, chief executive officers and other captains of industry to up-sticks and move to America or wherever?
    Why not? I'm sure American banks and industry are just crying out for new recruits from Britain at the moment.

  • Comment number 90.

    You dont have to be a genius to answer the question 'who is going to buy the £220 billion of govt gilts?'

    The govt, they print the money, redeem gilts from financial institutions, those institutions buy more govt gilts

    Its a giant Ponzi scheme

  • Comment number 91.

    #43 & #46

    As it happens, the Tories have already proposed a 10% cut in the number of MPs. Not enough IMHO but a start.

  • Comment number 92.

    Another perspective

    No gvt: Labour, LibDem or Conservator will be able to solve this mess alone.
    The only way is to call the IMF to the rescue.
    The IMF to impose drastic reduction to our disastrous public debt. Of course the politicians will choir to blame everything else than own they making
    Do you believe that Labour will cut the public debt?
    Do you believe that conservator will also do it, if they want to keep another parliament?
    The only way is to call the IMF, and to massage the tax payers and electorate again for the pain that is going to come when the IMF will be called in.
    On the view of the budget few first line… the global economy is to double his output within 20 years, the first question is with which resources?

  • Comment number 93.

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

  • Comment number 94.

    Well Sashaclarkson, you have managed to change the song that I thought was most appropriate which was "Time to Say Goodbye"
    Now I will be humming "There may be trouble ahead" whenever Tweedle Dum and Tweedle Dee "The two Funnies" of the labour party come on.
    Many thanks.

  • Comment number 95.

    #65 kaeru_jim. I think you may be the victim of unrequited love.

    Whilst gazing longingly at the object of your desire you appear to have missed the fusion of the Tory and Labour parties into one unified whole, both embracing sleaze, illegal state violence, and a contempt for the general population with equal enthusiasm, and both declaring their boundless love of mammon with equal fervour.

    How they must chuckle in the clubs of St. James´to hear themselves described as left wing.

  • Comment number 96.

    #51 GlenisDevereux - You seem to be misunderstanding what constitutes "rich." If you need to borrow GBP 300,000 to buy a house for GBP 300,000 - you are not rich, although you may well be aspirational, and those aspirations may or may not be sensible.

    Rich is someone like Hank Paulson with estimated personal wealth of $650 million. I´d be surprised if Hank could be bothered to differentiate between your example of the aspirational GBP 300,000 debt holder and some "poor" guy living in a free house. By the way please let me know if you know of any free houses (other than pubs), I may be interested in the odd purchase.

  • Comment number 97.

    'deck chairs' and Titanic spring to mind when listening to this budget speech - it's full steam ahead as better times are just over the horizon - anyone feeling anxious?

  • Comment number 98.

    Raising this level of debt is actually quite a smart move by the Government. They probably accept that they are going to lose the next election in which case what better way to constrain your rivals than burden future government finances with a huge servicing cost on the next wave of Gilts? There is no sinking fund set aside to meet these bonds.

  • Comment number 99.

    How depressing, the same [type of] people that were baying for the Tory's blood in 96 are now absolutely clique-sure that their tyrade against Zanu-Labour/unelected-Brown/Bliar/Mc-Goon will be getting them a bit popular as an insider i ntheir group of middle class psychology-grads, primary-teachers, project managers and IT consultants. The government could have done better, much better, you're as naive as those little Nu-Red flag wavers in 97 if you think Eton-Smug is going to make any difference. This is a storm 40 years in the making, and each successive government has been ushering it in as a crowd pleasing reaction to the red under your bed and the threat between our falling education contrasted with the developing economies' gap-closure in knowledge economics.

    Fact is all this sycophantic pleading for an election is gallows humour. It won't make the slightest difference. The suffering either comes now, or it comes later; either way, for you and for me, the suffering comes.

  • Comment number 100.

    #60 eddixon
    Check out.

    Snopes can be very good at determining the veracity of emails.
    I use it all the time.
    Urban myths will be the undoing of us all.


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