Gordon Clown .Com

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.

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.

It has been a few months since the last time we checked on Gordon’s prospects in the Betfair markets, so lets see how he’s doing now. Then we will gauge reaction to his Budget speech in a few weeks time by checking on the odds again afterwards.
In the “Next Labour Leader” market, we can see that Gordon’s odds are now 1.29, significantly shorter than September’s odds of 1.45. Things are starting to shake out in the leadership race, and it is also a lot clearer now that Blair is likely to stand down soon, so Brown has less time to make any “cock ups” and therefore a better chance of winning. There are, however, two more interesting things to note in the market. Firstly the odds of Brown’s nearest challenger David Milliband have come in significantly to only 11.0. Betfair are good enough to provide charts of how the odds have changed over time and these are displayed below:

The second, and perhaps more important, market to monitor is the “Next General Election - Most Seats” market. This shows how well Brown is doing against Cameron, and it does not make for good news for Gordon. When we last checked in September, the odds on Labour vs. the Conservatives were 2.22 to 1.83. This has now shifted even more in favour of Cameron, and now stands at 2.28 to 1.77. Combine this with the poll results, and things are not looking too good for Gordon.

Not much of a happy 56th Birthday for Gordon on Tuesday, as The Guardian reported that he is now trailing Cameron by 13 points in the latest opinion poll:

Gordon Brown is failing to persuade the public that he would make a better prime minister than David Cameron, according to a Guardian/ICM poll published today which suggests the Conservatives could win a working majority at the next general election.

Voters give the Tories a clear 13-point lead when asked which party they would back in a likely contest between Mr Brown, Mr Cameron and Sir Menzies Campbell.

The result would give the party 42% of the vote against Labour on 29%, similar to its performance under Michael Foot in 1983. The Liberal Democrats would drop to 17%. The result is the highest that the Conservatives have scored in any ICM poll since July 1992, just after their last general election victory.

Pretty unhappy birthday all around for Gordon then. It is now just under a month to go until Gordon makes what will probably (one way or another) be his final budget speech, and with such a dramatic deficit to claw back in the public opinion, who knows what crazy hair-brained schemes he may introduce in attempts to boost his popularity before it’s too late?

This week the Circus is in town and the new Ringmaster opened proceedings today with a predictable speech, going down like meat in a butcher’s shop. Familiar promises on issues from education to the economy were trotted out, to an audiance of virtually unanimous favour. In a familiar mixture of magic, illusion and religion, Gordon set out a safe-bet plan which demonstrated that very little is likely to change under his leadership, and that the mistakes of the past have not been learned from and are highly liable to be repeated, let alone corrected. Fiddled figures on unemployment, recently pulled apart in the press, were bare facedly reiterated for the umpteenth time.

It has not been the best of times recently for Gordon, since the happy events of a few weeks ago that saw his predecessor virtually decapitated by his own party. Today’s speech may have gone some way to repairing the damage of press comments of the past few days, but how permanent the patching-up exercise will prove is yet to be seen. The press swipes continued this weekend with particularly savage poll ratings reported in the Scotsman:

A Populus poll for the BBC yesterday showed that 60 per cent of people think Mr Brown has failed to make himself appear more “likeable, charismatic and in touch with ordinary people” over the course of the last year, compared to 33 per cent who said his image had improved.

Even more interestingly, the Observer carried the results of a poll in which voters have demonstrated that they are apparently so unhappy with the succession of Gordon Brown over Tony Blair, that they wish for an instant general election to be conducted to allow them to demonstrate their mistrust and dislike of Brown and his party:

A new opinion poll reveals 56 per cent of the public want the chance to have their say on the new leader of the Labour party, whoever it is, within the first six months. Voters are not content to leave the question of the next Prime Minister to the party and want him or her to earn the right to govern. The GFK/NOP poll found huge support for a genuine leadership battle rather than a coronation, with 81 per cent supporting a contest.

In an article that spans no less than seven pages in its online form, the Telegraph rips Gordon’s past record to shreds and reveals what switched-on observers will already no doubt be aware of, the fact that Gordon’s management of Britain’s finances has made the situations of most people worse overall:

In 1997, this “tax burden” stood at 37.3 per cent of national income (GDP). It has now reached 39.7 per cent and, on the Treasury’s own figures, will top 41 per cent in 2010.

In 2002, Brown unveiled a £8bn increase in National Insurance – a tax rise in all but name. He has also made an art form of “fiscal drag” – raising thresholds only in line with prices, which go up slower than earnings, so dragging more and more people into higher tax brackets.

This “stealth tax” technique has, in particular, hit the middle classes. There are now more than 4m top-rate taxpayers in the UK – up from 2.1m in 1997. So, increasing numbers of not-all-that-rich people are paying tax at 40 per cent.

Lastly, in a welcome diversion to the collapsing credibility surrounding Brown, the Independant runs a brief glimpse into the mind of Ed Balls, Gordon’s economic advisor and potential candidate to succeed him as Chancellor. Sadly though, as is often the case with these interviews, the questions posed by the general public are far more telling than the non-answers offered by the interviewee.

Recent political events make it look very likely that Gordon will get his greatest wish within the next 12 months and accede to the throne of Number 10 Downing Street. Like most new Prime Ministers before him, Gordon will doubtless be expecting the privilege of a honeymoon period, in which the press lays off their customary day-by-day attacks on the incumbent PM for at least a few months while he gets his feet under the desk.

Evidence is steadily mounting, however, that this may not be the case for Gordon. In fact, now that it appears that the toppling of Blair is fully complete, the press seem to have already declared open season on our dear chancellor, racing to get the early punches in to soften him up. This recent Observer article, for example, can be summed up with the following verdicts on Gordon’s performance:

Tax and benefits: Good if you are on a low income or have children. Bad if you are on a high income or are childless.

Homes and Inheritance: Bad for homeowners, who are not necessarily used to buying tax advice, but whose property values are dragging them into the IHT net.

Pensions: Generally disastrous.

Meanwhile the chances of Gordon reuniting a divided Labour party, and sweeping under the carpet his record as chancellor are looking slim. The following are the latest Betfair odds for Gordon to be worried about:

Betfair Odds for Gordon as Next Labour Leader: 1.45 (slightly lengthened from 1.42).
Betfair Odds for Next General Election: Labour 2.22 (lengthened from 2.1), Conservatives 1.83 (shortened from 1.93).

Against all odds, the various corners of the press continue to come out of the woodwork with various comments and views on the 0.25% rate rise. Surely this is old news by now? A week after his deputy suggested that the bank’s rate rises could continue further than expected, and are designed to shock the markets, David Smith (economics editor of the Murdoch-owned Times newspaper) has come out with soothing comforting talk that rates will never go over 5%. Incidentally this is the same David Smith who has been predicting for the past year that the next move in interest rates will definitely definitely be down, so it’s probably best to take his predictions of a 5% absolute cap with a pinch of salt. Elsewhere, the Independent takes a more precautionary and sensible approach, warning borrowers that the August rise will probably not be the last, given the recent rumblings from Mervyn and Co. Interestingly they point out that a 0.25% rise is not the only option available to the Bank, something many commentators appear to have forgotten recently.

Roger Bootle in the Telegraph suggests that the US economy is in for a tough 2007, due to the US housing market (the “leading support for consumer spending”) hitting the rocks, but of course the same situation replicated over here would not apply to Britain in the same way would it? Apparently a couple more interest rate rises could see Britain following the US where housing is concerned, but I’m sure Gordon must have thought of this.

The Sunday Herald add an interesting wrinkle to the whole interest rates debate by correctly pointing out that around half of consumer and business debt is actually lent out on a fixed-rate deal basis at the moment. Presumably this means that the Bank will need to raise IR even higher before it starts to have the desired effect? The Telegraph asks numerous “city experts” to comment on whether interest rates have peaked at 4.75% and comes to the conclusion that they almost definitely have not.
Perhaps most surprisingly of all, the BBC have reported today that even though CPI has just fallen by 0.1 whole percent, to 2.4%, this may not save us from more IR rises. Shocking really, as the BBC would usually use such news to persuade us all into thinking that rates must be about to go down again!

On a separate issue, Channel 4’s Dispatches programme have shown themselves to once again be the true masters of stating the bleeding obvious by revealing that apparently the various Private Finance Initiative projects that have been dreamt up by Brown and Blair since 1997 have all been huge rip-offs and terrible value for the taxpayer. Given that the Government effectively has the ability to borrow as much money as it likes at the lowest interest rates known to man, it seems flabbergasting that so much of the running of the country has been handed over to the private sector, at many many times the overall cost as in the pre PFI days. Brown’s famous promise that he would “only borrow to invest over the economic cycle”, despite a couple of tweaks by redefining the length of said cycle, redefining the definition of “invest” and the definition of “borrow”, would still be met even if the PFI deals had been done entirely within the public sector, as surely these works would have come under the “invest” column. Then again, borrowing all the extra money may have rung alarm bells in some areas, and the Government already obviously need plenty of it to pay for all their wars etc. Once Brown and Blair dream up the idea of using PFI to pay for wars, then maybe they will really be onto something.

On a lighter note, aside from all the doom and gloom of impending rate rises that is floating around at the moment, the Telegraph gives us a fascinating glimpse into the psyche and inner frustrations of the Iron Chancellor by revealing that he has decorated the treasury with, amongst other paintings, Graham Sutherland’s “Expulsion and Killing of an Enemy”. Something for Tony to ponder, perhaps?

Not been the best week for Mr. Brown. Approximately 6 months after Project Gordon disasterously failed to “put a more human face on the Iron Chancellor”, Blair has come out and said that he will remain in office for “at least another year”. UBS have predicted that CPI is about to hit 2.8%, which means more rate hikes are on the way, which is unlikely to impress Britain’s over-indebted population of Labour Voters, as they see their mortgage repayments hit heights they never expected. The economics editor of the Guardian summed up the situation nicely today, reiterating the fears that people appear to be facing, after one tiny measly 0.25% rate rise:

We will see in the coming months just how many individuals in Britain are living on the edge, with only modest increases in rates enough to tip them over the edge. My guess is that the economy is far more sensitive to a quarter-point rise in borrowing costs than it was, especially if there is a threat of further moves from the Bank. The fact that insolvencies were 66% higher in the second quarter of 2006 than in the second quarter of 2005 is a sign of just how tough many people are finding it to meet their financial commitments; add in spiralling energy costs, rising unemployment and higher interest rates and you have the recipe for extreme difficulties for many households.

So, despite being listed in Time Magazine’s 100 most influential people in the world (Blair was excluded) last year, things are not looking too good for Gordon. He may not be facing serious competition for the succession (John McDonnel notwithstanding), but the real question is: if and when Gordon hits Number Ten, how long is he expecting to remain?

Betfair Odds for Gordon as Next Labour Leader: 1.42
Betfair Odds for Next General Election: Labour 2.1, Conservatives 1.93