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.

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.”

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.

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.

Much as Gordon hates it, the MPC’s desperate flapping attempts to keep runaway inflation under control seem likely to lead to another interest rate rise, possibly as early as next week.  Swervin’ Mervyn King has commented that the rocketing money supply of 14% per year might - just might - be a sign that inflation is out of control.  Indeed with RPI already at 4.6% it’s hard to find anyone else who might have missed this fact - aside from Gordon of course. 

Desperate to keep rates down and voters happy, Gordon will no doubt attempt once again to knobble the MPC and fiddle the CPI figures for the umpteenth time.  The Office for National Statistics recently upgraded the weighting of fuel and oil in the CPI basket, a cunning move as with Oil prices currently lower than this time last year, they would at their current price be contributing to bringing CPI down from the current sky high 2.8%.  No sooner had they done this, however, when Iran stepped in and grabbed 15 Brits, which has helped push oil back up a few dollars per barrel.  And if the situation doesn’t get sorted soon, the price may rise yet more, and Brown and the ONS could be laughing on the other side of their faces.

Here’s what Merv had to say about M4:

Mr King said policymakers should ignore the recent increase in money floating around the UK financial system at their peril, saying it indicated that inflation would soon rise.
 
His comments, to the Commons Treasury Select Committee yesterday, underlined expectations that the Monetary Policy Committee is prepared to lift borrowing costs to 5.5pc either next month or in May.

Mr King said: “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. To ignore it as a potential medium-term influence could lead into potentially tricky territory.”

It hasn’t taken long for the real truth to emerge about Gordon’s budget on Wednesday. 2p off the basic rate of income tax and he doubtless expected to be showered with praise and win votes up and down the country. The abolition of his own 10% tax rate to fund this measure was a mere detail of course. Well thanks to a bit more in depth analysis, it seems that is not the case.

The BBC, probably the most visited news website out there, has an article giving a run down of the winners and losers of the budget, and surprise surprise it seems the poorest will be the biggest losers. So much for Gordon Brown, “man of the people”. KPMG have worked it all out for us, in fact. Firstly the losers:

Taking into account the effect of changes to income tax and NI - although not tax credits - in 2008-09, compared to this coming financial year (2007-08), then most people will be better off because they will be paying less money to the Chancellor.

The most obvious exception will be people earning £17,000 a year or less.

By having a slice of their income taxed at 20%, rather than 10%, they will pay more - £131 a year more, KPMG estimates, if their income is less than £10,000.

And now for the winners:

The biggest winners in this calculation will be those earning about £35,000 a year.

They will keep £353 a year more, according to KPMG.

The rise in the ceiling for the standard 11% NI contribution rate means that those earning about £40,000 a year will gain very little - just £24 a year.

They will now pay NI on the top slice of their income which was not subject to it before.

Meanwhile those earnings more than £43,000 will gain £196 a year overall.

So, typical Gordon it seems. Taking from the poorest and giving to the richest. In fact, as long as you earn more than £17,000 per year, you are ahead. Money taken directly from the pockets of those earning less. A very typical New Labour way of redistributing wealth it would seem.

Helpfully, KPMG have arranged a handy graph for us all to see where we fit in:

See if you can find yourself there. Luckily for Gordon, he’s well above the zero point, as are his friends and colleagues. So that’s all right then.

Seems as if Gordon is coming under heavy fire again today, in the lead up to his big budget speech tomorrow.  And as the country prepares to breathe a collective sigh of relief that the “Iron Chancellor” won’t be at the treasury much longer to do any more damage, there are plenty who can’t resist sticking the knife in.

Not exactly surprising too, given that inflation appears to be spiralling ever more out of control as RPI hit 4.6% this month, it’s highest in over 11 years, and further out of kilter with interest rates than we have ever seen before.  Even the fiddled CPI measure jumped to 2.8%, despite the fact that it now includes such ridiculous items as mobile phone ringtones, presumably because the Office for National Statistics expects them to come down in price soon.

Edmund Conway in the Telegraph warns of the danger ahead as Gordon’s tax burden continues to shoot up, killing Britain’s international competetiveness:

But the most worrying accusation levelled at the Chancellor is that, as part of this fiscal expansion, he has clogged up the arteries of commerce with unnecessary and excessive taxes and regulations.

The tax burden recently soared to the highest level since the mid-1980s, while businesses calculate that since 1998 the cumulative cost of government red tape has climbed to £55bn.

Significantly, these changes have come at precisely the time when almost every other major economy is doing exactly the opposite. Ireland has boosted its growth and wealth dramatically by cutting taxes and regulations on businesses, and even countries such as Germany that are associated with high rates are slimming down more than Britain.

In short, under Mr Brown, the UK has gone from being a relatively low-tax economy to being a high-tax economy.

The effects of this change take years to pan out: companies gradually realise that they would be better off building their next factory in another country, foreign investment slowly dries up, economic growth slows and unemployment rises.

Worryingly, the first of these things is already happening. A recent survey from the CBI showed that one in five top UK companies is considering moving abroad.

The Institute of Directors, the accountancy firm Ernst & Young and the think tank Reform all warned recently that Britain was losing its competitiveness, and fast.

Even more surprisingly, perhaps, is the scathing attack launched on Brown by Lord Turnbull, Gordon’s “Sir Humphrey”  - former permanent secretary to the treasury.  Gordon, he says, has a “Stalinist ruthlessness” and treats colleagues with “more or less complete contempt”.

He cannot allow them any serious discussion about priorities. His view is that it is just not worth it and ‘they will get what I decide’. And that is a very insulting process,” Lord Turnbull said.

“Do those ends justify the means? It has enhanced Treasury control, but at the expense of any government cohesion and any assessment of strategy. You can choose whether you are impressed or depressed by that, but you cannot help admire the sheer Stalinist ruthlessness of it all.”

“The chancellor has a Macavity quality. He is not there when there is dirty work to be done.”

The article’s author even goes so far as to suggest that Gordon might not actually be a very good prime minister, given these qualities!

Lord Turnbull’s comments will raise fresh doubts about whether Mr Brown is prime ministerial material and will be ammunition for the Tories at a time when the opinion polls suggest the public is wary of Mr Brown.

While senior Labour figures admire the Chancellor’s intellectual ability and his political authority they are worried about his ability to run a team and to delegate.

Gordon Brown will clock up a century later this week in his budget speech as he announces his 100th tax increase since coming to office.  Gordon has already put up taxes 99 times as chancellor to pay for his public sector spending splurge, but more is likely to be on the way on Wednesday.

George Osborne, the shadow chancellor, said that on past form there would be “stealth tax rise number 100″ in the Budget, even though Britain already had the highest tax burden in its history.

“These 99 stealth tax rises have made our economy less competitive and hit family incomes hard,” he said.

“They are part of the reason people are feeling the pinch as our real living standards fall. Even more depressing is that so many people look at the state of our public services and ask: where has all my money gone?'’

The tax burden in britain is now 42.7% of GDP, up from 39.5% 10 years ago, one of the biggest increases in the western world, and yet our standard of living has barely improved.  The next big question is: can Gordon do as much damage from number 10 as he has done in number 11?