Gordon Clown .Com

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.”

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.

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.”

The Daily Mail has unearthed a 200 page pamphlet produced by Gordon in his socialist student days, giving parasites a load of helpful hints and tips about how to sponge a living from state benefits. These days, Gordon has translated his ideas into a reality with the highest number of people off work on sickness benefit ever seen.

It is not a leaked copy of Gordon Brown’s manifesto in his campaign to succeed Tony Blair, but a 200-page booklet produced as a socialist student leader in the Seventies, long before “stealth taxes” were invented.

However, cynics will say the seeds of the welfare State boom under Labour can be seen in the document edited by 22-year-old firebrand Brown when Rector of Edinburgh University.

Entitled Alternative Edinburgh, it provides a revealing insight into his attitudes to the State and the law in its suggestions of ways to live for free.

“If you’re British and can give an address, free money is available from social security, basic £5.80 per week,” it says.

“Social and medical benefits are your right, not charity hand-outs, so never be reticent about claiming them. For whatever the reason the so-called welfare State was brought into being, it can and must be used to its full extent.”

Young Brown had his own “five-year plan”: a council takeover of shops, pubs and cafes, a crackdown on car owners and a 50 per cent rise in local taxes to help the working class.

Some may say little has changed.

A taste of things to come once Gordon moves nextdoor to become Prime Minister, perhaps?

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.

Pull the other one Gordon!  Seriously.  Barber, Lawson, Brown.  Inflationary chancellors.  Apparently Gordon says that we must not let inflation get out of control:

This is the right time to send a signal that we’re determined not to return to stop-go, that we’re determined to bear down heavily on inflation.

“Determined to bear down heavily” to the extent of dropping rates down to all time low levels and creating the biggest asset bubble ever seen in the history of Britan, eh Gordon?  Yes, we know what you mean.  Eddie George even admitted it a few days ago!

The Brown Boom - it will go down in history.  Only to be outdone by the Brown Bust.