Gordon Clown .Com

Peter Spencer of the Ernst and Young ITEM Club economic think-tank has characterised the UK consumer as being addicted to credit, according to the latest ITEM club report.  The report says that while the outlook for growth remains reasonably good, most of that growth is likely to be based on borrowing, as consumers follow Gordon’s lead and steal from their future to pay for current consumption.  That has created a country that is complacent about risk, and an economy that is skating on thin ice.

“Many people are following the Chancellor’s lead and are borrowing to finance consumption.”

“Both as individuals and as a country we have borrowed a huge amount to support this growth,” Mr Spencer said.

“The bottom line is that we are all living beyond our means. In the short term, Mr Brown has resorted to borrowing for consumption. If the Chancellor is forced to borrow so much when the economy’s so sweet, what will happen when it turns sour?”

The report highlights the fact that the current account deficit has ballooned, despite a healthy economy and robust tax revenues. Government borrowing is higher than forecast, with overall public sector net borrowing now expected to be £34bn in 2007 to 2008, up from the £31bn projected in the pre-Budget report.

Mr Spencer said: “The UK’s current deficit has reached 3.5pc of GDP which suggests that as a country we are close to the edge. Ultimately, we are all skating - not to say wobbling - on thin ice. There’s a danger that we are slithering into complacency.”

“The current benign macroeconomic environment has made both individuals and corporates overly relaxed about risk, inflating asset values and transactions and boosting borrowing and spending,” it reads.

“Homeowners have been under pressure from rising tax and utility bills but all the indications are that they have kept spending as if it was going out of fashion. The saving ratio [the proportion of income people save] has fallen back to just 3.7pc meaning that many households are borrowing to finance current spending.

“Lenders have relaxed their criteria and we have been gearing up accordingly.

“The US sub-prime market, which now threatens to contaminate the rest of the mortgage market, provides a clear warning of what can happen when lending criteria become too lax.”

Growth in the UK economy was driven by the business and financial services sector. The report said the strength of the business sector was reflected in industrial confidence, mergers and acquisitions, fixed investment and employment.

“It also underpins the high value of the stock market and low level of corporate yield spreads, lowering the cost of capital and providing further impetus to M&A and business investment.”

However, the ITEM Club expresses grave concerns over long-term risks to the economy: “A major threat is building up in financial market gearing, asset valuations and overconfidence.

” These markets can turn on a sixpence. The relentless upward march of prices leaves them prone to relatively minor shocks, as we saw in February. Moreover, the burgeoning current account deficit leaves the UK prone to currency weakness.

“The problem is that if asset prices do not stabilise this will leave the UK, with its heavy dependence upon financial markets, vulnerable to a crash.”

The Independent lays into Brown today, saying that he is a nasty piece of work for the way he has treated those people who’ve been unfortunate enough to see their pensions go belly-up.  But to expect anything different from the Iron Chancellor is clearly misguided, as he has shown his true colours only too well in recent times.  Public dissatisfaction with Brown is bad, but with the move nextdoor and more and more past mistakes coming to light, it’s likely to get far worse.

Gordon Brown is a pretty nasty piece of work. Over the past three years, he has done everything in his power to prevent the Government having to provide financial help to the 125,000 people who lost their occupational pensions when their companies went bust. And every concession that has finally been made, every penny that has eventually been paid, has come only after a lengthy battle.

By the time this year’s Budget came round last month, the political pressure had become so intense that Brown finally conceded to enhance the grossly inadequate Financial Assistance Scheme (which he set up in 2004 to stave off another backbench revolt). However, his new and more generous package still fell short on just a few details.

For a start, one of the biggest problems with the FAS is that those who qualify aren’t getting the money quickly enough - some died before they saw a penny. As a result, the campaigners had proposed that an emergency fund be set up to help those most in need. Getting rid of archaic rules that force bust pension-funds to buy annuities for their members was another suggestion that would help the remaining cash in distressed pension schemes be released immediately.

And finally, while the new FAS will cap benefits at £26,000 a year, well above the £12,000 cap originally put in place, there is still no inflation protection - ensuring that pensioners’ incomes will be reduced in real terms every year.

The combined cost of sorting out these final niggles would be negligible. However, when the opposition parties laid down an amendment to the Pensions Bill this week, which would have dealt with all these issues in one fell swoop, the Government whipped its members to vote it down. Although several Labour MPs rebelled, the Government still narrowly won the vote - a political victory for Brown, but yet another blow for those who lost their pensions.

It’s sad that this issue has got caught up in Brown’s campaign to become the next Prime Minister, and disappointing that he didn’t realise he could have done the right thing and emerged looking compassionate rather than mean-spirited. Who knows; the public may even have started to believe in the cuddly image the Chancellor has been trying to cultivate by pretending that he listens to the Arctic Monkeys.

Although the Government began trying to fight off its responsibility to the 125,000 victims of this scandal by saying that it was not its job to underwrite private sector pensions, the precedent of this case is no longer very important. With the Pension Protection Fund in place, people who lose their pensions in future will have a lifeboat waiting to rescue them - funded by private, not public, money.

The real message that the Government’s stubborn stance has sent out is that, while it might be willing to send money to the other side of the world if there’s a natural disaster, it’s not prepared to put its hand in its pocket for its own citizens when their life savings have been washed away through no fault of their own.

This week’s defeated amendment still has life. It must be voted on in the Lords, and if it is upheld there, the Government will face yet another Commons vote. In the meantime, however, thousands of people struggle on without the pensions they are owed.

This is Brown’s chance to show that he has an ounce of compassion in him.

Hardly likely.

Over recent weeks we have seen a growing realisation amongst journalists and newspaper editors that Brown’s economic miracle is not all that he has promised, and that he is likely to leave a trail of destruction in his wake as his desperate gambles with the British economy begin to unravel over the coming few years.  The group was joined today by Larry Elliot in the Guardian who believes that Brown’s single achievement and selling point for his stay as Prime Minister, the economy, is not the “inflation proof show-stopper” that has been claimed.

Britain has become a giant offshore hedge fund in which the viability of the balance of payments depends on the City’s ability to gamble more successfully than its counterparts in Frankfurt, Tokyo and New York, and where an excess of cheap money has allowed consumers to feed their spending habit, either directly through their credit cards or by using their homes as cash machines. The result is an economy in which the financial sector is the main source of growth, and which is even more heavily skewed towards the south-east of England than when Labour came to power. The gap between rich and poor is growing too.

In his budget speech last month, Brown boasted that inflation since 1997 had averaged 1.5% during his stewardship of the economy, half the level of the previous decade. This week’s figures showed it running at 3.1%, and that’s using the yardstick for assessing the cost of living - the consumer prices index - that is most favourable to the government. Until 2003, Brown used the retail prices index excluding mortgage interest payments, and on that basis inflation is running at 3.9%. Indeed, had the chancellor stuck to his old measure, King would have had to use his fountain pen in three of the past four months.

Using the all-items RPI, still the preferred benchmark for pay negotiations, prices are 4.8% higher than they were 12 months ago. That has left the City convinced that interest rates will be raised by the Bank of England next month and that further increases may be necessary later in the year.

Brown would say that, even if interest rates were to rise to 6%, that would still leave them where they were when Labour came to power. The problem is, though, that Britain is now so heavily in debt that even quite small increases in borrowing costs could hurt. They will certainly affect political sentiment, not least because it’s a good bet that quite a few voters would themselves secretly admit that spending more than you are earning - be it at a personal or a national level - is unsustainable.

In the past, periods of excess have been followed by king-sized hangovers, and we may be in for some pain this time as well. Brown is reluctant to talk down the pound, which would be one way of boosting exports, and a different mix of monetary and fiscal policy - higher taxes to dampen down consumption, offset by lower interest rates and a lower pound - is a political non-starter at the present juncture, given the scale of the increase that would be needed.

New Labour is ideologically opposed to more innovative ideas, such as a two-tier system of interest rates that would discriminate between money borrowed for investment and that used for speculation. Nor has it done more than dabble with the idea that there needs to be radical reform of land and property taxation in the UK to keep the housing market in check. Having been blamed, unfairly, for single-handedly destroying pensions, Brown is hardly likely to lay himself open to the charge that he wants to do the same to property.

A decade ago, a more activist industrial strategy - perhaps giving support to Britain’s fledgling biotech and environmental industry, as provided by competitor countries for their high-growth sectors - might have helped rebalance the economy, but it’s a bit late now.

Instead, Brown’s arrival in power will coincide with an economic slowdown of one sort or another. Either the chancellor will be successful in his attempt to put the squeeze on pay, in which case below-inflation wage deals will lead to falling real incomes, or deals will be struck at about the current RPI inflation rate, in which case the Bank will have kittens at the prospect of a wage-price spiral and keep on raising interest rates until higher unemployment drives the message home. A good way to overturn a 15-point opinion poll deficit? I wouldn’t bank on it.

It’s being reported in the press today that Gordon is to face questions in parliament after telling a news conference at the IMF that selling off Gold reserves in 1999 for a cut price was the “right thing to do”, despite the fact that Gold has nearly trebled in price since then.  The Times is reporting that this single decision alone by Brown, taken against the advice of his more experienced colleagues at the Bank of England, has cost the country £2bn.  To put that in perspective, Black Wednesday - when the Major government attempted to protect sterling within the ERM - cost £3.3bn, and was seen as a massive and catastrophic event at the time.

Insiders involved in the decision have broken ranks after an 18-month battle in which the Treasury has blocked attempts by The Sunday Times to make public the official advice received by Brown before he sold the gold.

They have revealed that Bank of England officials had serious misgivings over the chancellor’s determination to sell 400 tons of bullion in a series of auctions between 1999 and 2002, when the price was at a 20-year low. Since then the price has almost trebled, meaning the decision cost the taxpayer an estimated £2 billion.

The Bank of England, which has managed Britain’s gold reserves for more than 300 years, was never asked for its advice on whether Britain should sell the gold. A senior Bank of England executive said the timing of the sale was “not debated”.

At a secret meeting with senior gold traders, Bank of England officials were warned that the proposed auctions would achieve the worst price for taxpayers. The officials are understood to have agreed with the analysis but said they were powerless to influence the Treasury.

Warnings over the risks of losing money from the gold sell-off are understood to be set out in internal correspondence sent by Bank of England officials to the Treasury in 1999.

Last night the Bank of England sought to distance itself from the decision to sell off the gold. In an unusual intervention, it said: “In regard to the gold sales, the Bank acted solely as agent and the decisions were taken by HM Treasury.”

Its statement casts doubt over previous assurances given by Treasury ministers and Tony Blair to parliament that the decision to sell the gold reserves was made on the “technical advice of the Bank of England”.

A senior investment bank director, present at a meeting held by the Bank of England in May 1999 to discuss the sell-off, said: “We were told this was a Brown thing and that the Bank had no say over what was going on. The officials were unhappy.”

The gold sell-off is seen in the City as Labour’s equivalent of “Black Wednesday”, when John Major’s government lost £3.3 billion in a day in its failed attempt to prop up the pound.

Parliamentary questions will take place on Tuesday.

Slippery Gordon Brown had his “get out of jail free card” ripped up yesterday, when documents released by the Confederation of British Industry showed that they never supported his tax raid on pensions, as he had previously claimed.  The CBI released their 1997 budget submission to the chancellor, which is recounted below.

“It is widely thought that the Government might restrict, or even abolish, the tax credits attached to dividends. The CBI would oppose this measure.

“This change in isolation would raise money for Government at the expense of businesses and shareholders (taken together), cutting the funds available for investment. The move would cut the actuarial value of pension funds which would need to be compensated at least in the case of defined benefit schemes.

“This would require higher payments of dividends from the companies the funds own, or higher employer contributions. Far from leaving businesses with more retained profits … the move could have the opposite effect.”

The fall out from the disasterous tax grab by Gordon was made crystal clear by Mike Warburton of Grant Thornton accountants, who said:  “The Chancellor’s tax raid will cost pension funds another £7 billion in 2007-08. From an actuarial point of view he removed between 10 per cent and 20 per cent of the value of pension funds at a stroke.”

Gordon’s “hand-in-the-till” tactic of abolishing tax credits on dividends in his 1997 budget seems to be coming back to haunt him 10 years down the line.  The CBI have complained that Brown was warned at the time that such a stunt would cause a £100 billion black hole in pensions, and that this prediction appears to be coming true.

Gordon Brown’s decision to abolish tax credits on dividends was a “misjudgment”, according to Richard Lambert, director-general of the CBI employers’ body, who said on Sunday that the move had weakened occupational pension provision.

Mr Lambert, a former member of the Bank of England’s monetary policy committee, said the scrapping of tax relief in Mr Brown’s July 1997 Budget had made “a significant contribution to the weakening of the country’s occupational pensions platform”.

“There was a misjudgment by the chancellor,” he told the Financial Times. The CBI had privately warned the Treasury at the time the move was “not a good idea”.

The Tories have claimed that Brown deliberately attempted to bury the bad news of the release of the documents under the Freedom Of Information Act by releasing them just after the start of the commons easter recess:

There were suggestions, denied by Treasury officials, that the chancellor might have been seeking to prevent a more damaging disclosure later - possibly in the middle of the contest for the Labour leadership that is expected to see him succeed Tony Blair.

Another sly piece of trickery from the tricky sly chancellor we have come to know.  But the real bad news for Gordon came today when it was revealed that he could face a Treasury Committee enquiry into why he chose to ignore the warnings and push ahead with the tax rises anyway:

A possible investigation by the influential Commons Treasury committee into one of the most controversial actions of his decade as Chancellor threatens embarrassing publicity during his leadership campaign this summer.

The Tory MP Michael Fallon, deputy chairman of the Treasury Select Committee, said yesterday that he will propose an investigation into Mr Brown’s 1997 decision, which ultimately cost pensions an estimated £100 billion and contributed to the collapse of hundreds of schemes.

Mr Brown could be summoned to testify to the Committee on why he went ahead with the tax change, despite explicit warnings from Treasury economists that it would result in a huge chunk being taken out of retirement savings.

Labour sources acknowledged last night that any suggestion Mr Brown was personally responsible could further dent his appeal at a time when polls already suggest he is less popular than David Cameron, the Tory leader.

John McFall, the Labour MP who chairs the committee, said he would decide on the matter in the coming weeks, but pressure is mounting at Westminster for Mr Brown to answer for his abolition of the dividend tax credit.

Things are slowly falling into place ahead of the Labour leadership election, which seems likely to prove a fairly rough ride for Gordon.

Gordon’s forecasts in his past budgets have been exposed as a sham today, the lies laid bare for all to see by Liam Halligan.  Gordon has borrowed from the future simply to buy his way into Number 10, and seeming has got away with it so far.  But the true cost will only become clear several years after he has departed from the Treasury.

I worry that the Chancellor is heavily relying on our “future” to secure his “future”. He is chalking up massive, multi-billion-pound liabilities, the vast majority of them hidden from the national accounts, which taxpayers will have to meet only once Brown has disappeared from the political scene, his prime ministerial ambitions fulfilled.

In 2003, when we went into deficit, the Chancellor said we would be out of the red by 2004. When 2004 arrived, and the deficit had deepened, he said a surplus would be achieved, instead, by 2006. Well, here in 2007, we are still in deficit. And - surprise, surprise - Brown again predicts a swift turnaround.

This Chancellor often declares that he has “proved independent forecasters wrong”. It is true that the economy has grown quite strongly in recent years - and often by more than non-Treasury economists have predicted.

When growth is stronger than expected, though, tax receipts should be higher and spending lower, meaning that Brown’s fiscal forecasts should also be better than expected. But in each of the past seven years the Chancellor has ended up with a bigger-than-forecast fiscal hole - meaning higher borrowing too.

In this year’s Budget, Brown said he would need to borrow £118bn between 2007/08 and 2010/11. In his 2006 budget, he forecast borrowing of only £102bn during the same period.

So, in a single year, Brown has quietly increased taxpayers’ future liabilities by £16bn. Paying that off will cost us the equivalent of an extra penny on income tax over the four years during which the extra borrowing will take place.

Peer into Brown’s “off-balance-sheet” liabilities and the numbers get scarier still. Chief among these is the future bill for the final salary pensions of state workers.

The Chancellor’s public sector recruitment campaign means the eventual cost of these pensions - all of which will be met by taxpayers - has ballooned in recent years. The latest official figures, relating to March 2005, put the bill at £530bn - bigger than the entire national debt.

Given all those extra state workers, such pension costs reached an estimated £640bn in 2006 and £685bn today. So again, Brown has jacked up taxpayers’ liabilities over the last year - this time by £45bn.

Then there is the controversial Private Finance Initiative - much of which, again, is not on the Government’s books. Brown has approved a slew of new PFI deals over the past 12 months, increasing our future liabilities by no less than £24bn.

So, a chancellor who last month claimed - amid much fanfare - that his fiscal rules had “once again been met” has, in one year, added a total of at least £85bn to the bill we taxpayers face.

In recent years, Brown has used our money in a crude attempt to spend his way to popularity. In my view, it is a popularity he will never achieve - not least because he consistently tries to fool us.

He tells us a tax rise is a tax cut. He tells us a deficit is a surplus. The British public are not stupid. Yet, as his final Budget shows, this Chancellor treats us as such.

Lies upon lies from Gordon, year after year.  And yet it seems some people still believe he is a prudent chancellor and a viable option for future prime minister!  But as we have seen recently, it seems that none of Gordons lies can remain uncovered forever.

Seems like Gordon has finally relented and allowed the truth to be known on this one! Incredible really as just a few days ago he was claiming Britain had the strongest economy in years!

In a statement today, the Chancellor admitted that he had “put pressure” on the Monetary Policy Committee to keep interest rates artificially low in order to maintain his popularity as chancellor. Gordon Brown, who delivered his 11th budget speech recently, said that this was the only way to avoid sending the country into recession and causing precipitous falls in asset markets, including housing. The plan was to “fuel consumer spending”, Mr Brown said, with low interest rates encouraging people to “flock to the high streets of Britain in order to save the economy”.

Nice one Gordon! Get us all into massive amounts of debt, the likes of which have never been seen before, then run off to become Prime Minister just before the real pain starts to hit! Brilliant idea.

“I have now realised that while this plan was successful in the short term, it could lead to greater problems further down the line as debt increases. I will now make it my mission as Chancellor and perhaps soon Prime Minister to address this problem and get Britain back to its once great status as a stable thriving economy built on sustainable and sound fundamentals.”

Good luck Gordon. Because if the results of this come about soon, you won’t be spending much more time in Downing Street!

Update: April fool!

Gordon has been desperately trying to keep under the radar this week, as his Budget of a week ago appears to have been exposed as a complete sham and nothing but a pack of spin designed to fool the electorate.  And then there was the horrendous nose-picking incident, the video of which has now had well over 70,000 viewings on YouTube.

But it seems the press just can’t keep away as it was revealed today that child poverty has begun to increase again after almost a decade of steady declines.  This will come as bad news to Gordon who has a target of reducing it by 1 million by 2010.

Opposition politicians and poverty campaigners said a core government policy was failing and warned that its 2010 target could be missed by a million children, in spite of measures announced by Gordon Brown in last week’s budget.

Official figures showed relative poverty - those living on less than 60% of average incomes - rose to 12.7 million people in 2005-06, from 12.1 million the year before.It brings to an end the longest period of falling poverty since records began in 1961. The number of children living in poor families rose by 200,000 to 3.8 million.

…

Mr Brown announced £1bn more in tax credits for poorer families in last week’s budget. Experts think that could lift 200,000 children out of poverty, but that would only be a fifth of the way to the 2010 target of one million. The IFS says the government would need to spend £4bn extra by 2010 on help for poor families to make its target achievable but Mr Murphy said the new strategy was about getting more parents into some of the 600,000 vacant jobs available. “People should never be better off on benefit.” The shadow chancellor, George Osborne, said the “depressing” figures showed “that poverty is increasing, inequality is rising, and the incomes of the poorest fifth are in decline. Gordon Brown made tackling poverty the great promise of his chancellorship, and yet he leaves the Treasury with poverty rising.” The Liberal Democrat work and pensions spokesman, David Laws, said: “These figures are dreadful for the government, with child poverty rising to almost a third of all UK children. Poverty in Britain is increasing again, and social mobility seems to have been falling. The government’s ambition to cut child poverty now looks in tatters.”

Not much good news around for Gordon at the moment, it seems.

A picture tells a thousand words, and plastered across the papers today were pictures of the Iron Chancellor filmed in Parliament sitting behind Tony, picking his nose! Impressing voters with his stealthy sneakiness (much like the tax cut cons in the Budget), but no doubt disgusting them at the same time, Gordon sat there and openly committed the foul act not once, but twice! Seeing is believing of course, so if you feel the need the video can be found here.