Gordon Clown .Com

A new study shows that the “low unemployment” which Gordon’s much heralded “miracle” economy has been built upon, is a mere sleight of hand, and that actually unemployment is much much higher than the government are willing to admit to.

Unemployment is almost three times as high as the Government’s official figures a new study has claimed.

A report by Sheffield Hallam University said 1.7 million “hidden jobless” should be added.

In particular, the report said that at least one million of the 2.7 million people on incapacity benefit should be classified as unemployed.

However, official unemployment has fallen by 15,000 to 1.68 million in the same period. The claimant count has fallen for eight months in a row, the longest continual reduction since the summer of 2003.

The claimant count, which covers people eligible for jobseeker’s allowance, fell by 9,300 in May to 880,400, the tenth time the figure has fallen in the past 11 months.

The claimant count has fallen for eight months in a row, the longest continual reduction since a run of 20 consecutive monthly reductions which started in the summer of 2003.

But the figures were overshadowed by a big increase in the number of people classed as economically inactive, which includes students, those looking after a relative, workers who have taken early retirement or given up looking for a job.

The figure increased by 77,000 in the latest quarter to 7.95 million, the highest figure since comparable records began in 1971.

The number of jobs in manufacturing firms also fell to a record low of 2.96 million after a fall of 49,000 in the latest three months compared with a year ago.

Today’s data from the Office for National Statistics also showed that the number of people in work fell by 10,000 in the quarter to April to just over 29 million.

The claimant count is now at its lowest total since September 2005 and is down by 71,500 on the year.

Average earnings increased by 4 per cent in the year to April, down by 0.4 per cent from the previous month.

Excluding bonuses, the figure was unchanged at 3.6 per cent. Wage growth was 4.2 per cent in private firms, down by 0.6 per cent on the previous month, compared with an unchanged figure of 3.1 per cent in the public sector.

There were 638,000 job vacancies in the three months to May, up by 21,700 from the previous quarter.

There were 2,000 days lost through industrial disputes in April, the lowest monthly total since January 2005.

The UK still has one of the lowest unemployment rates in Europe at 5.4 per cent, but the figure has increased by 0.2 per cent in the past year compared with an average European Union fall of 0.9 per cent.

Jim Murphy, Minister of State for Employment and Welfare Reform, welcomed today’s figures, saying: “Since 1997 the numbers on jobseeker’s allowance, incapacity and lone parents benefits have fallen by over 900,000 and they continue to fall. Today’s figures show that the number on jobseeker’s allowance has now fallen for 10 out of the last 11 months.

“Our welfare reforms, combined with a strong economy, are helping more people to come off benefits and look for work - but we are determined to go further still, and to break for good the cycle of poverty and dependency.”

Meanwhile the bond markets are making things uncomfortable for Gordon’s coronation, with long term interest rates rising by about 0.50% in the last week alone.  The market is doing the MPC’s job for them and there’s nothing Gordon can do about it.

The Confederation of British Industry has said today that the number of manufacturers intending to raise their factory gate prices soon has hit the highest level for 12 years.  This is the latest in a sequence of events demonstrating that inflation is back with a vengence, and that suppliers and retailers have rediscovered their pricing power.  With commodity prices and food ingredients prices soaring, price rises at supermarkets look set to continue for the forseeable future.  The collective coma surrounding oil depletion has led to soaring biofuel demand causing food prices to shoot up, a situation that is not likely to be reversed easily or soon.  Pricing power has returned to supermarkets who are seeking to rebuild profits following the energy price shocks of 12-18 months ago, and in view of the likely future ramp up in food costs.  Gordon and the MPC should be very worried indeed about this.  King has already linked climate change to an increase in biofuel demand and hence food price inflation - this is not an issue that is going to go away soon.

The CBI’s Industrial Trends survey showed that 32pc of manufacturers expect product prices to rise, compared with 8pc thinking that they will fall. The resulting rounded balance of +25pc was the highest since March 1995.

It came as oil prices hit a nine-month high of $72 a barrel, fuelling fears that higher petrol prices and transport costs could generate further jumps in inflation.

Brent crude was up $1.10 at $71.70 a barrel in late trading, lifted by concerns about the potential for military action against Iran, and strikes by state oil workers in Nigeria.

With mounting evidence that worldwide oil supply is near to peaking, or may indeed have already peaked, the long term trend in oil prices from here forwards is likely to be up, and up fairly quickly.  Oil is vital for everything the world economy does, so the price of all goods and services is likely to be affected.  There is no easy way out of this one.

Howard Archer, chief UK and European economist at Global Insight, said: “The CBI survey adds to the pressure on the Bank of England to lift interest rates by a further 25 basis points to 5.75pc sooner rather than later, and a back-to-back [increase] in June is currently looking like a real possibility. Furthermore, there is an ever-growing danger that interest rates will reach 6pc before the end of the year.”

George Osborne, the shadow chancellor, said: “It’s official: Gordon Brown is leaving the Treasury with the public finances in the worst state in Western Europe. You have to be truly incompetent to combine the highest taxes in our history with a budget deficit higher even than Italy’s.”

While problems on the world stage can take some of the blame, the MPC and Gordon Brown must shoulder the greater share.  Inflation is a problem for the US and Europe too, but it seems to be affecting the UK worse than most - our food price infltaion is far higher than the eurozone.  Perhaps it’s because the British economy is built on debt, with enormous monetary growth needed to keep everything ticking along.  Until it all goes wrong, of course.

The newspapers today are reporting that Gordon has admitted his mistakes in an aim to make a clean break with the Blair years.  These mistakes he has specifically admitted to are as follows:

• Some mistakes made in Iraq
• Some mistakes over ID Cards
• The culture of celebrity

Cunningly, none of these mistakes could be directly pinned on Gordon and for most of them, Blair is more to blame.  Although quite who can take the blame for the “culture of celebrity” is anyones guess.  Gordon, of course, failed to admit his more numerous and gross errors as Chancellor, preffering to brush the following under the carpet:

• Inflating enormous debt bubble
• Destroying pension schemes
• Massive PFI off-balance-sheet debts
• Massively increasing tax burden through fiscal drag
• Selling Gold reserves just before Gold tripled in value
• Creating the biggest trade defecit in 10 years
• Pricing hundreds of thousands of people out of owning their own home
• Nose picking
• etc

Conveniently the above mistakes were not mentioned.  Over the coming months and years, as the long term effects of these blunders become progressively clearer.

As we draw closer to the local elections, a group of prominent economists have today put forward their argument for higher interest rates in an open letter to the Bank of England in which they state that inflation risks could surge out of control if the Bank does not raise rates soon and quickly.

Tim Congdon, Gordon Pepper and others have said that broad money (known as M4, and currently rising at 12.8% per annum) points to much higher inflation next year.  Congdon told the Telegraph:

“Inflation is back and it’s going to get to 4pc by the middle of the next year, even though I expect the CPI to fall back a little over coming months first.

“You can’t get away with money supply growth of 12pc or 13pc like this. It’s not as bad as earlier cycles, but it is nevertheless bad and it’s going to end the usual way. Rates will have to go to 6pc to 6.5pc, and may have to reach 7.5pc,”

Mervyn King is also concerned about M4, in opposition to other MPC members such as David Blanchflower who believe monetarism is dead and buried.

Mervyn King told the Commons Treasury Select Committee last month that he was watching the money supply closely. “I’m more concerned with monetary aggregates than some of my colleagues. To ignore it as a potential influence could lead into tricky territory.

“My concern about the money numbers is whether they are telling us something about the inflation numbers not in two years but in maybe three to five years,” he said.

Mr King’s comments were a veiled criticism of the doveish faction on the MPC, many of them political appointees picked by Chancellor Gordon Brown. Insiders at the Bank are said to be particularly scathing about the choice of David Blanchflower, best known for his academic opus Money, Sex and Happiness, an area of research viewed as frivolous by monetarists.

It remains to be seen whether the CPI measure will fall back to target later this year as the MPC has forecast, but they will be looking further ahead than that in making their rate decisions, and if the opinions of these economists are anything to go by, rates could have to go quite a bit higher than Gordon wants.  They are already paying the price for failing to raise rates quick enough in 2006, and now rates will have to go higher for longer.  With the “low inflation” pillar of his potemkin economy crumbling and about ready to collapse, how long will Gordon last in number ten?

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.”

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.

The Daily Express has the pick of the bad news stories for Gordon today, with its frontpage headline suggesting that inflation could lead to base rate rises up to 6%, and consequently larger mortgage bills for homedebtors.  They also include a rather telling comment about Gordon’s handwriting, based on the signature in his letter to Mervyn King.

CRIPPLING rises in mortgage bills were forecast as “certain” last night after a shock leap in inflation.

Economists tipped the base rate to rocket over the 6 per cent mark, leading to eye-watering hikes in repayments for millions of home owners.

And the mortgage misery spelled humiliation for Chancellor Gordon Brown as the Bank of England took the unprecedented step of formally warning him that prices are running out of control.

Households now face punishing interest rate rises on top of spiralling costs for fuel and consumer goods as well as the biggest tax burden in history.

A quarter-point jump to 5.5 per cent will see payments on a £100,000 mortgage rise from £722.80 to £738.99.

But if interest rates peak at six per cent as predicted by some economists, the monthly payment will soar to £771.82 – an increase of almost £50 a month. Owners paying off a £200,000 home loan – the average price of a three-bedroom semi – will have to find an extra £1,176 a year.

At the same time there is the prospect of a summer of discontent, with huge pay de­mands by unions expected to keep wages in line with rising prices. Eco­nomist Phil Shaw, of international banking group Investec Securities, said: “The inflation figures make an interest rate rise a certainty, along with the possibility of another rate rise
bey­ond that.”

Figures due to be released today from the Office of National Statis­tics showed that inflation hit 3.1 per cent last month, way above the Treas­ury’s 2 per cent target.

The rise in the Consumer Prices Index – which does not include home loans – was up from 2.8 per cent in February.

The news sent shockwaves through global money markets, with the pound briefly passing over the two-dollar mark.

In exceeding the target by a full percentage point, the inflation rise reached the level where Bank of England Governor Mervyn King is obliged to provide the Chancellor with a written explanation.

It was the first time Mr Brown has faced such a letter. In it, Mr King warned that the Bank will almost certainly hike interest rates next month from 5.25 per cent.

He said: “The Monetary Policy Committee remains determined to set interest rates at the level required to bring inflation back to the two per cent target.” This was likely to have that effect on inflation “within a matter of months”.

He blamed an “unexpectedly sharp increase in energy prices” which had offset a fall in petrol prices, and he highlighted rises in food prices caused by global weather conditions hitting production.

Firms were also raising prices of consumer goods in response to “robust” spending by shoppers. “Furniture and furnishings rose by almost 10 per cent in March, a record rise,” his letter said.

Both the Chancellor and Tony Blair tried to shrug off the inflation nightmare yesterday. In his reply to Mr King, Mr Brown wrote: “Inflationary pressures have been a feature of the major industrial countries in recent times.”

Effectively backing further interest rate rises, he added: “I agree that the Monetary Policy Committee’s approach is appropriate to the Government’s monetary policy objectives, namely to maintain price stability.” Meanwhile, Mr Blair told his monthly Downing Street press conference: “There’s tremendous pressure on families all the time. I think it’s a feature of today’s world that people are stretched.” And he risked ridicule by claiming that Mr Brown was “the best Chancellor since the Second World War”.

Shadow Chancellor George Osborne said: “Gordon Brown’s reputation for economic competence is unravelling before our eyes.” Lib Dem Treasury spokesman Vince Cable said interest rate rises “will cause misery for thousands of people in severe debt who have borrowed up to the hilt to secure a mortgage. Debt servicing problems will only get worse.”

Howard Archer, economist at Global Insight, said: “This is a thoroughly nasty set of data that essentially guarantees that the Bank of England will raise interest rates.”

Graeme Leach, chief economist at the Institute of Directors, said: “The case for a further quarter-point rise cannot be in doubt. It looks like a done deal.” Louise Cuming, head of mortgages at moneysupermarket.com, said the increase had taken the City by surprise.

It threatened those trying to get on the property ladder. “If we don’t get new buyers into the market, the market will stagnate,” she added.

Tony Woodley, general secretary of the Transport and General Workers Union, said: “Employers had better get used to the idea that our pay claims this year are aimed at winning workplace victories on pay so that workers can afford to meet their rising living costs.”

Mr Brown’s reply to the Bank of England interested handwriting experts. Erik Rees, of the British Institute of Graphologists, said: “This is the handwriting of a man whose statements you have to check and check again. The fact the word sincerely is virtually illegible is very apt.”

Mervyn King was forced to write a letter to Gordon today after the Chav Price Index hit 3.1%, the highest level since the measure began in 97.  The RPI, a more true measure of inflation, rose to 4.8%.  Last time RPI was at these levels, interest rates were 7-8%, yet the Bank of England seems content that rates around 5% are enough to control inflation.  Evan Davis hit the nail on the head today when he asserted that the China deflator may not be having such an influence as before.  The Bank predicts CPI will fall back to target by the end of the year, but they have been incorrect with predictions in the past.  If this prediction were to prove incorrect, the timing could not be worse.  The letter, incidentally, was barely worth the 10-year wait, and was largely along the lines of “please don’t sack me”.
Meanwhile Gordon will soon face a vote of no confidence in parliament over the pensions fiasco, the Tories using an opposition day to table the necessary motion.  This being parliament, Gordon is unlikely to lose the vote, but another vote - the local elections taking place in the first week of May - could prove far more damaging for Gordon.

With the local election campaign kicking off, Guido Fawkes has been doing a daily update showing whereabouts Gordon has been off campaigning, and what he’s been up to. At least it keeps him out of Westminster dreaming up new ways to rob us of our hard earned. Here’s the round-up so far:

Day 1, April 3: Gordon was mumbling at a press conference about having only “30 days to save devolution”. He left behind a typed crib sheet with phrases such as “Tony Blair has always agreed with me in the difficult decisions I have had to take and I have always agreed with him.” He also left his handwritten notes behind which amused all graphologists.

Day 2, April 4: Gordon was in Edinburgh launching a Fabian pamphlet with Douglas Alexander making the case against freedom for Scotland.

Day 3, April 5: Today Gordon was off to Gleneagles, promising to “give every child in the world a better chance - freed from poverty and liberated by education.”

A few months ago UNICEF reported that British children were the unhappiest in the Western world. Youth unemployment is higher now than it was in 1997. 15% of British school-leavers are functionally illiterate. Bit early to be claiming “mission accomplished” at home?

Day 4, April 6: Speaking at a joint press conference with Jack McConnell, the Scottish First Minister, Mr Brown accused the SNP of ducking questions.

Speaks from back of a bus to (ironically) anti-democratic communists condemning anti-democratic racists about “Hope not Hate”. Video here.

According to the Guardian “Our cheery chancellor of the exchequer’s bold makeover as a hip, contempo dude has, it seems, a wee way to go yet. Appearing with Celebrity Big Brother runner-up Jermaine Jackson on the Mirror’s anti-racism bus in Glasgow, the Broon, who foolishly spent the early 1970s battling with a doctoral thesis on the Scottish Labour party (1918 to 1929) rather than jiving on down with the Jackson 5, first needed an advance Treasury briefing on who exactly Jermaine was. He then, since no one had thought it necessary to tell him that Jermaine was a man not a woman, boarded the bus, strode up to JJ’s wife, shook her hand, and told her how very much he enjoyed her work. And to think he’s our next PM.”

He was also a speaker at the annual lunch of the Newspaper Press Fund in Glasgow.

Day 8, April 10: Gordon Brown was at Mossmorran in Fife praising ExxonMobil and Shell’s contribution to the economy.

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.”