Economy
The current government have thrown away the golden years of the recent boom in the British Economy by throwing huge sums of money at two wars, which no sensible right-minded person could see any justification for entering; by spending huge sums of money on the health service, without appearing to improve the health of the nation; by spending massive sums on education, but without any improvement in the basic 3Rs; by increasing the numbers of government employees so that in some constituencies 40% of all workers work for the state, leaving the rest of us to pay for their inflation-proof pensions when they retire.
When the boom comes to an end, as all booms do; the government should have been saving enough income from those reasonable 10-11 years to be able to kick-start the economy without having to resort to massive borrowing. In his recent financial statement the Chancellor admitted that he will need to borrow £118,000,000,000 to cover his backside during this crisis. That’s £118 billion pounds.
And they have the gall to call themselves the saviours of the British economy. They are the problem not the solution.
Regrettably the opposition don’t seem to be much better, so far the Conservatives seem to be mesmerised by what’s going on in the world’s financial markets; they seem to have little perception of how to react and indeed have been very slow to criticise the government for fear of being made to sound anti-British. Any decent opposition would be hammering this government on their levels of competency for months; not a dickie bird.
The Liberal Democrats are a complete waste of space. Clegg must rank as one of the worst leaders of a political party since Michael Foot. If it wasn’t for Vince Cable they would be sunk without trace.
To throw the level of money that the government propose at the problem is of the highest irresponsibility. The level of taxation required in the future to repay the borrowings will be huge and last for years. If you accept that the current politicians aren’t very good at running the economy and spend every penny they can then you can assume that the high taxes required to repay the current level borrowing will remain in place once the debt has been repaid; by then they will have found some other crack-pot scheme to invest in.
The level of waste by this government has been startling, leaving aside the huge sums of money thrown away by invading countries who hadn’t declared war on us, the sums wasted on computer systems, which by any stretch of the imagination will never work in the way they were supposed too runs into billions of pounds. The company’s who have failed to deliver on their original briefs, provided the government with ever increasing bills, which were paid without hesitation even though they were never near to completing the project in the way they promised. Amazingly these companies still work for the government and are still billing them for projects, which will never work. The NHS patient system being a classic case of a catastrophic waste of money.
Although some of the causes of the problems of the current credit crunch can be laid at the doors of the banks for lending indiscriminately much of the problems can be laid at the door of the government. This Labour government has encouraged people to borrow as much as possible believing that the housing boom would be go on for ever and that the general public would be able to fund ever-growing debt from equity gain.
The British banks operated in a virtual non-regulated environment and naturally, as any capitalist organisation would, engineered scheme after scheme that released more and more debt into the system. The problem was that the money released into the system had no real asset backing. It only had debt backing. So when it became apparent that many of the debtors couldn’t repay their debt then their mortgager could pay back the bank that had lent them the money and so on. Disaster.
The government, through the Bank of England and the FSA should have seen this coming. It’s happened at least twice before. However what they did was lighten the regulation and allowed the banks to behave even more irresponsibly. Ed Balls, now the current Minister for Children, whilst Chief Minister of the Treasury and when he was Gordon Brown’s assistant when Brown was Chancellor spoke and boasted on many occasions that the British Financial system was the least regulated in the world. Very well done.
Borrowing could have been reined in. The minimum repayment on credit cards should have been raised to 10% of the debt many months ago. It is currently 5%. This would have meant that people would have had less to spend and gradually less debt. The banks and the building societies should have been told that when they were selling mortgages the amount they lent was not allowed to be higher than 4 times combined salary. So if salaries of £20,000 were being earned then the maximum mortgage would be £80,000.00 and so on. No bank or building society should be allowed to lend more than 95% of the agreed value of the property being purchased.
It is interesting that the French have a similar mortgage policy as this in place and they have had very little problems in their housing market and much less problems in respect of the credit crunch. If these policies had been in place then no housing boom would have taken place and we would not have the level of re-possessions we are going to have during the next year or so.
We now have a situation where because the Bank of England has had to cut interest rates dramatically, and there’s more to come, people who have prudently saved all their lives are now faced with deposit interest rates so low that their necessary income is threatened along with their living standards.
Meanwhile the government continue to bale out banks and companies with our cash and will have to find more of our money to provide unemployment benefit or job-seekers allowance to the people that their policies have helped throw out of work. Brown states that he is the only person who can sort out this mess. If it wasn’t so serious comments like that would make you shake with laughter.
Brown is incredibly naïve; when he talks of the success of the British Economy it was all down to his prudent policies now our economy is in tatters he has the effrontery to say that the problems are all world generated.
This unelected fool, who has never had a real job, should be thrown out of government as soon as possible.
Too much of this countries wealth has been created in the banking and money markets. Fine it’s great that London has become a world leader in terms of all sorts of financial markets. The problem comes when we have the problems we are now having. If the financial institutions don’t make any money, and they aren’t, then where is the tax going to come from to help pay for the reckless spending by this government. People forget that the current banking basket case has for many years contributed billions of pounds in tax revenue to the exchequer. That source of tax has gone along with many other sources.
So how do we solve the problems we have? We need to have three strategies, short term we need to take care of the next year, a medium term strategy, which will take care of year’s two to five and long term strategy, which will keep the UK economy on course regardless of what happens in the rest of the world.
So let’s start with the immediate problems. It would appear that getting the banks to lend again will help. The problem here is that we can influence British banks but are unable to influence the policies of foreign banks, which were, up until a few months ago, lending more money in Britain than British banks. Foreign banks are now constricted by their own governments in what they can do and can’t do.
Part of the reason that the banks who have been part-nationalised were not lending money was that the terms of the loans that they had taken on from the government were so onerous that it was much more beneficial to repay these loans rather than lend the money more freely. On the preference shares that these banks issued to the government there was a premium of 12%. With that sort of interest rate clearly the incentive is to repay the loan as soon as possible.
The government have now seen the light and rectified this problem and changed the preference shares to ordinary shares. This will have two effects, capital should be released into the market and it will also have the effect of strengthening respective balance sheets.
However the dallying around with the previous policy has put the recovery back three to four months.
Let’s get the doom and gloom out of the way. We will probably have around three million people unemployed by the end of 2009. House re-possessions were up by 92% (source BBC) in the third quarter of 2008 to 13,161. The trend is upward which, means that repossessions in the final quarter are likely to be up by a similar percentage. According to the FSA 2.9% of all mortgages are in arrears and the numbers are growing. The government believes that the only way to get out of this mess is for it to borrow billions and start building new infrastructure. Roads, schools, hospitals. Apart from the fact that most of the public buildings and works commissioned have built using the pernicious Private Finance Initiative, (PFI). Little has been said about these schemes and its sister scheme Public Private Partnerships (PPP). These schemes work basically as follows. Say the government needs a school, it puts the work out to tender, when all the tenders are considered a contractor is appointed. It then becomes the responsibility of that contractor to raise the finance and then to build the school. Say the building costs £1million. The company that wins the bid and constructs the school then receives a rent from the local authority of say £300,000 for 30 years. Normally as part of these contracts any repairs or renewals to this school can only be done by the original contractor or their nominees. Basically it’s a licence to print money and ties up local authority money, and local tax payer’s money for years and years.
The big advantage for the government is that firstly they don’t have to raise the money and secondly, because its not government money being borrowed to build the project they don’t have to include these borrowings in their Public Sector Borrowing Requirement (PSBR). Informed opinion says that as the government has underwritten all the PPP and PFI schemes it should be providing for the possible failure by including the debts in the PSBR.
Just recently it has become apparent that a number of the companies who are participating in PFI schemes are unable to raise funds to complete their side of the bargain. What this means is that the government has to release funds to get the building contractors to finish their contracts. This, of course means that the government is now using taxpayers money to build projects with their PFI partners, which could and should have been built by the government without involving these companies in the first place.
The idea of capital schemes to beat recession and stagnation has been tried by Japan and only had a very limited success. It enabled many property entrepreneurs to get very rich but did very little to stimulate the economy. The Japanese project started in the early 1990s and growth for the period 1991 – 1999 averaged 1.5% much lower than most other major economies. Since 2000 there as been a gradual rises in the growth of GDP, it reached about 2.8% in 2005. This trend has continued in 2005 – 2008. Most of this growth has been created by a rise in public and commercial confidence.
And that is the buzz word, without confidence then there will be no quick return to stability. In an economic downtown people who have money don’t spend because they believe that things are going to get cheaper. Therein lies the main problem. If consumers don’t buy then eventually manufacturers stop manufacturing and lay people off and the vicious cycle continues.
So how do you inspire confidence, firstly ensure that everyone has confidence that any money they have saved in any British Bank is totally safe. Secondly, the British Government now owns Northern Rock and still owns the Post Office, just.
Instead of making Northern Rock foreclose on any mortgage that becomes slightly in arrears insist that they start lending to both private individuals and companies. This is now starting to happen. Not irresponsibly, as they have done in the past. If current mortgagees fall into arrears then help the mortgagee by either extending the mortgage or by changing the mortgage to an interest only mortgage for a necessary period.
Make government loans to housing associations at very competitive rates. Housing associations have been largely a great success in replacing council housing and deserve much more support. If necessary to get housing associations building, government should consider giving some of the land it owns towards these projects. Councils should be forced to offer land and ensure that planning obstacles are not in place.
If we do need, according to John Prescott, 3,000,000 more homes to meet demand in the next 10 years, then we need to get on and build them.
The NDP would insist that a percentage of every bank’s lending should be for mortgages in the private sector. The banks would be restricted in how much they could lend in both percentage terms and by the amount the borrowers are earning.
At the moment every non-food shop seems to have a sale on. Up to 70% off in some instances. Within a few months shops will stop these offers and things will return to a normal shopping environment. Sales and profits will be lower, but the good shops will survive and gradually as the recession bottoms out, hopefully by the end of this year, then shops will start to take on more staff and the economy will start to move much more quickly upwards.
At the moment there are many people who are better off than they were a year ago; anyone with a tracker mortgage will have seen there repayments fall by nearly three quarters from a year ago.
Naturally there is a fear that when the time period on these deals runs out then the lenders will not offer to renew this type of mortgage and if they do then the rate will be considerably higher. One step the government could take is to ensure that the lenders have to renew a deal when it runs out by the same length of time as the original deal. So if someone had a two-year tracker mortgage which started in 2008 and is due to end in 2010, the lender should, at the very least have to extend that deal, if required to 2012.
This would greatly stabilise peoples thinking and confidence.
Petrol and diesel prices are considerably lower than they were a year ago, and although they will rise on the back of a weaker pound, prices should not get back to anywhere near the peak of 2008. The price of raw materials is coming down rapidly. Gas and electricity prices will reduce in the coming year. Whether they will reduce by the 40% they increased by in 2008 is another matter.
While the government allow the French to export our gas to France and charge us for the privilege then the price reductions can’t be certain. The NDP would force the French Power companies to charge the same price for the fuel in the UK as they do in France. Failure to do so would mean that they are excluded from being part of the renewed nuclear programme.
Inflation is coming down and will continue its downward trend during 2009. The price of food is falling and the competition between the supermarkets will ensure that the trend of lower prices will continue throughout the year.
Apparently 40% of all mortgages are tracker mortgages, so adding this to lower petrol/diesel prices, lower gas and electric prices and lower food prices then for those still in employment thinks would seem to be OK for those able to hang on to their jobs..
Maybe the government should encourage the mortgagers to start changing as many of the non-trackers mortgages over to tracker mortgages as soon as possible. Not sure about this as this works when rates are low or getting lower. Not so sure about this policy when rates are increasing as they will eventually.
Maybe the mortgagers should only be allowed to offer tracker mortgages for the next year. And none should be more than say 1.5% over base.
How can we help the people who are in the process of losing their jobs? Maybe we should consider that for those that have a mortgage then the lender must offer some help for the period the person is unemployed, limited to a year possibly. The help can either be by extending the length of the mortgage, or by changing the deal to the lowest rate available or by simply adding the unpaid months to the end of the loan.
A similar scheme should be implemented for council tenants. Rent not paid should be held over and then added back so that the amount outstanding can be paid over time.
This leaves the private renting sector. This requires more thought, any ideas!!!!
However you look at it, this and previous governments have let our manufacturing sector virtually disappear. We have to rebuild the base. Ship building is enjoying a rebirth in the North West, the relationship with Nissan; although that has run into temporary problems, prove that British workers can compete with any in Europe. There are a few bright spots.
The NDP will encourage multi-national companies to set up plants in the UK. We will do this by incentive, by making the capital tax regime company friendly and by ensuring new developments do not get ensnared by unnecessary planning constraints.
We might be part of the European Union but our own citizens must come first. This government has issued thousands of working visas for non-Europeans during the last few years. The NDP would cease this type of visa immediately. When full employment returned then we would re-consider.
All government expenditure should be immediately reviewed. Any spending, which doesn’t directly affect the economy should be suspended. All available government funds must be directed at getting the economy moving.
The NDP would immediately suspend spending on all medium to long-term computer projects.
These suspensions would include the new Children’s register.
The NDP would also suspend the computer system linking 30,000 GP’s with 300 hospitals; apparently 12 billion, yes billion, pounds have been spent on this project so far. It is already 4 years behind schedule and is expected to drop further behind schedule and cost more.
The NDP would immediately suspend all spending on ID cards. This scheme is doomed to failure and in the view of most sensible commentators is a complete waste of money and in any event won’t work.
Negotiations need to take place with the Civil Service unions. A measure of realism has to take place. The public purse can no longer afford to pay the pension benefits public servants have received in the past. Whilst existing contracts cannot be altered we still believe that for existing employees there should be a gradual increase in the retirement age bringing it into line with the private sector.
The age when all people receive their old age pension is gradually changing; women’s retirement age will go up from 60 to 65 during the period from 2011 to 2015. Equality with men will mean both sexes retire at 65. Further changes are already planned and passed as an act of Parliament. For those born between April 1959 and April 1968 the retirement age will become 66; for those born between April 1968 and April 1977 the retirement age will become 67 and for those born after April 1977 the retirement age will become 68.
Public servants, at the moment, generally retire at 60 and receive a pension based on final salary and number of year’s service. This is far superior to what is generally available in the private sector. Retirement is at the very least 65 and most companies, if they run a pension scheme, operate a money purchase scheme. The benefits of these schemes are totally dependent on the way the investment market works and have no guarantees.
It was always stated that the reason why public servants had such better pension schemes was because civil servants rarely earned the same as there direct opposites in the private sector. Unfortunately the reverse is now true. The proliferation of jobs in the public sector, particularly under this government has meant that public servants enjoy both better salaries and better pension packages than are available in the private sector.
The NDP understands that all new employees joining the civil service now cannot retire before they are 65.
However given the current financial situation this is not enough. It must surely be right that all public servants move to the same retirement ages as private workers.
Maybe we should consider that all new employees into the public service only qualify for money purchase pension schemes rather than the current final salary schemes.
There should also be a freeze on replacing all civil service non essential jobs. Only essential jobs such as, nurses, doctors, firemen, police etc, should be allowed to be filled as they become available through natural wastage or retirement.
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