Great Britain Sinks Under Personal & Public Debt

25/10/2007

The chief auditor, the man charged with stopping government waste, announced he was stepping down on Thursday after criticism of his own lavish spending on foreign travel and top-notch restaurants.

Sir John Bourn, 73, who for 20 years served parliament by making sure public money was not frittered away on frivolous projects, said he would retire as comptroller and auditor general next January to avoid a conflict of interest.

The announcement follows weeks of criticism of Bourn's high spending, including more than 330,000 pounds of taxpayer money spent on 45 trips to destinations such as Mauritius, Brazil and the Bahamas in the past three years.

25/10/2007

The credit crisis is far from over and British shareholders are at serious risk of becoming its next victims, the Bank of England has warned.

In an unexpectedly downbeat report on the state of the British financial system, the bank warns that the UK stock market is "particularly vulnerable" to a downturn.

Almost all British workers have money invested in shares – either directly or indirectly through their pensions and life assurance plans – and could lose out if share prices suffer a significant fall.

The bank warns that there is a significant risk of the City and Britain's financial system becoming embroiled in further turmoil as a result of the credit crisis gripping the world's money markets.

The "credit crunch", which has already caused a run on Northern Rock bank, is far from over, it says.

25/10/2007

Public sector pension commitments have risen to more than £620 billion, the Government has admitted.

The increase — £142 billion in a single year — means that meeting all of the Government's pension liabilities over the coming years could cost every household in Britain almost £30,000 over the next four decades.

It follows a change in the way the Government accounts for pensions, under pressure from independent advisers.

25/10/2007

MPs claimed £87.6 million in allowances last year - a like-for-like rise of around 5% on the sum for the previous 12 months, the House of Commons announced today.

Last Saturday was the 20th anniversary of the 1987 stock market crash. On so-called Black Monday, share prices around the world plummeted as the investment landscape changed within a matter of hours.
 
And as equity markets climb back towards their old highs, I ask: Could it happen again two decades later?
 
Whilst some purists might quibble that the real equivalent of Black Monday is after this weekend, history records that on the 19th October 1987, shares around the world plunged in unison. Investors who had enjoyed an almost uninterrupted bull market since 1974 saw their portfolios completely pole-axed within 24 hours.

Leading UK shares suffered a £17billion setback yesterday as ongoing fears of a US recession rocked global markets.

 
But the FTSE 100 Index escaped a repeat of the near 11 per cent Black Monday slump 20 years ago, closing down 68.6 points, just over 1 per cent, to 6459.3, after recovering from earlier 114.5-point losses.

 
Soaring oil prices and a mixed US corporate earnings picture added to financial sector woes in the wake of the sub-prime mortgage crisis — and market professionals predicted more uncertainty.

Yet most feel the apparent schizophrenia of the marketplace cannot persist for long and something will give way.

One view is the depth of a housing-led U.S. slowdown eventually sinks the robust global economy story, slashes earnings and sees equity retreat and bonds and cash stay bid.

Proprietary traders at Lehman Brothers buy into that view.

"The Emperor has no clothes. The reflation trade has been exposed for what it was, a misguided belief that 2007 was a rerun of 1998. It is not. The financial sector is in pain. The consumer is rolling over," they said in a note to clients.

The International Monetary Fund (IMF), which warns that the UK housing market is overvalued by 40%. The IMF believes that property values in Britain, Ireland and Spain are set for a property slump, following record price surges. The UK could end up following in the footsteps of the US, with nationwide house-price falls triggered by reckless lending and the widespread credit crunch.

Fresh turmoil in the global debt markets has set off sharp falls in commodity prices and high-risk assets as investors scrambled for safety.

The dollar soared as US investors liquidated foreign holdings, ending at $1.4129 against the euro and £2.0276 against the pound, in one of the most dramatic currency moves this year.

Britain's economic resurgence over the last fifteen years has been driven by record levels of household debt and a public spending spree that cannot continue, according a German-led team of economists.

In a damning new report "More Mirage than Miracle" published by the free-market think tank Policy Exchange, the analysts said Britain was relapsing into high-tax and high-regulation sclerosis just as the rest of Europe begins to shake itself out of statist lethargy.

Leading UK thinktank Policy Exchange has today published a highly critical assessment of the state of the British economy.

It demonstrates not only that the UK is underachieving when compared to some key competitors but also that the progress which has been made is unsustainable in the future.

Bringing together key economic indicators in a unique and accessible form, the report ‘More Mirage than Miracle’ by Policy Exchange Chief Economist, Dr. Oliver Marc Hartwich, and Chief Economist Europe at Bank of America, Holger Schmieding, argues that the UK economy over the past 15 years should have grown much more than it has and that it is constrained by high levels of public debt and a poor infrastructure..

HSBC Group Holdings, Britain's biggest bank, has warned that Britain faces a stark "de-rating" by investors in coming months as growth slows and funds begin to lose confidence in the country's economic management, triggering a mass exodus of "hot money" from the City..

Risk aversion is back. Financial stocks are plumbing depths they first hit in mid-summer, when there were fears that the credit squeeze might spread into a systemic financial crisis.

 
But if August’s crisis was about “Chicken Little”, markets are now fretting about something different – recession.

But for now, recession risks are enough to trump the allure of cheaper money, at least as far as equity traders are concerned.

25/10/2007

Gordon Brown is under pressure to suspend rises in fuel duty after it emerged that the Treasury is set to pick up an unexpected £3 billion tax windfall from the soaring price of oil.

Farmers and road hauliers threatened the Prime Minister last night with nationwide fuel protests in the run-up to Christmas unless the Government passed on some of the extra income to motorists. The price of oil has risen by 50 per cent this year, with the AA predicting that the cost of a litre of petrol will pass through the £1 barrier for the first time in the next two to three weeks.

The four great energy companies of the West – ExxonMobil, Shell, BP and Total – have quietly turned their backs on the low-carbon option.

Alternative technologies simply do not deliver the power required to achieve the economic growth targets of China and India. These companies are investing tiny sums in alternative energy.

They know full well that the nations of the West depend heavily on the profits, taxes and dividends that accrue from an efficient hydrocarbon economy.

A failure to invest in oil and gas extraction will leave Europe and America poor, technologically disabled and unequipped financially to cope with climate change..

As many as 70,000 homes could be repossessed next year as owners struggle to meet mortgage repayments, an expert warned yesterday.

 
The quadrupling in the number repossessed last year would take the figure close to the peak seen during the property market collapse of the early 1990s.

 
The alarm has been sounded by respected housing market commentator Ray Boulger.

 
Ray Boulger, of mortgage brokers John Charcol, warned that the repossessions will be part of a wider property market reverse that could see prices fall by 10 per cent in some areas.

 
He said five interest rate rises in the past year have pushed thousands of homebuyers to the brink of financial oblivion.

 
He believes that even if the Bank of England cuts the 5.75 per cent base rate in the next few months, this will be too late to stem the tide of homelessness.

By underpinning Britain's soaring house price inflation, the planning system favours the interests of the middle class at the expense of the poor.

The basic problem of high house prices is that they have reduced social mobility: the chance to climb up the property and, thereby, the social ladder.

Those who already own land or property benefit at the expense of others who do not.

At the root of this gross injustice is a system that is still regarded by many as rather benign regulation, the Planning System.

Katherine Cook, 28, from Hulme in Manchester, wants to buy her first home. But with a salary of £15,000 working in sales and marketing for a recycling company, this seems a long way off.

"I feel some concern about my pay," she says. "I am 28 and have a degree so I should be earning more, although I have job satisfaction."

Katherine recently reduced her working week to four days so she could go on a college course in horticulture. "I had an allotment and love growing things, so wanted to explore my interest in it."

She finds it hard to make ends meet and on occasion she dips into the red; at present she is £200 overdrawn. Fortunately, her father has paid off her £10,000 student loan debt.

One-in-three hospitals are in financial chaos, a Government watchdog warned last night.

 
The Audit Commission said 31 per cent did not use taxpayers' cash properly and had "inadequate" financial management.

 
And 23 per cent of NHS trusts were in the red despite Government efforts to cut deficits - down from 33 per cent in 2006.

 
Commission boss Steve Bundred said he was "worried" about NHS finances.

Soaring tax bills were forecast last night after a £218billion black hole in the NHS pension fund was revealed.

The eye-watering sum is the equivalent of £8,700 for every family in the UK.
And the widening gap in NHS accounts is threatening to send the overall public-sector pensions liability to more than a trillion pounds.

The pensions shortfall was revealed in obscure accoun­ting documents in the House of Commons library yesterday.

Senior Tories warned that the scale of the pensions funding crisis could mean crippling tax rises for years ahead.

Shadow Treasury Chief Sec­retary Philip Hammond said: “Any black hole in the pension scheme will have to be funded by the taxpayer.

Almost half of Britain's nuclear power stations are currently shut down for repairs or maintenance, the Nuclear Industry Association confirmed today.

The nuclear power company British Energy yesterday announced that units in Hartlepool and Heysham, near Morecambe, have been shut down after problems were detected during inspections.

John McNamara, a spokesman for the NIA, confirmed this brought the total number of inactive stations to seven out of the UK's 16 reactors, which between them produce around 18% of the nation's electricity.

Incapacity is also one of the biggest contributors to economic inactivity in Britain. Official figures earlier this year showed there are 1.65 million people who are unemployed, with a further 7.9 million defined as "inactive".

Incapacity benefit costs the taxpayer more than £7 billion a year, prompting Labour to make a string of promises to cut the number of people officially designated as too sick to work.

The population of the UK is set to increase by 4.4 million to 65 million by 2016, according to new projections.

The Office for National Statistics (ONS) estimates 2.3 million of the rise would be a natural increase and 2.1 million down to migration.

Further projections say the population would reach 71 million by 2031 and 77 million in 2051.

Sir Andrew Green, chairman of pressure group Migration Watch, said "Population growing at this speed is just incredible - twice the population of London by the mid-century

"Huge impact on our infrastructure, on our public services, and indeed on the whole nature of our society, and all of it taking place without the public ever being consulted."

Rosamund McDougall, of the Optimum Population Trust think-tank, said: "There is no parallel in our history for population growth of this magnitude. It will blow a massive hole in any national climate change strategy, impose huge strains on our infrastructure and environment, seriously damage quality of life and make Britain one of the most crowded and stressful places in the world."

Irish premier Bertie Ahern last night delivered a stinging rebuke to Gordon Brown for “running away” from a poll on the EU treaty. In an astonishing attack, Mr Ahern urged the Prime Minister Mr. Brown and other European leaders to go to the people if they really believe in the EU.

He said: “I think it’s a bit upsetting to see so many countries running away from giving their people an opportunity. If you believe in something why not let your people have a say in it? I think the Irish people should take the opportunity to show the rest of Europe that they believe in the cause – and perhaps others shouldn’t be so afraid of it.”

Mr. Brown seems certain to ignore the warning, and claims there is no need for a referendum because the treaty differs from the hated Constitution that the Government had previously promised to put to the vote.

But the treaty already means the end of Britain’s veto in 61 areas and measures in the document allow Brussels to end our vetoes in other areas in the coming years – without our permission.

The Conservatives claim that as many as 120 Labour MPs are in favour of a referendum – enough to overturn the Government’s 69 majority.

The CBI, the Institute of Directors, the BCC and the Federation of Small Businesses said in an open letter to the chancellor last week that they were "deeply concerned" about the the UK capital gains tax (CGST) proposals.

They added that the proposals, which they described as "a bolt out of the blue", would hurt small businesses and employee share-ownership schemes, as well as discouraging risk-taking by venture capital firms vital to economic growth.

"The impact of the decision will be felt throughout the economy," their letter said.

"The net effect will be to set back the growth of the economy over coming years by discouraging longer-term investment and risk-taking."

"Combined with this week's decision on capital gains tax, our members feel the government's 10-year effort to create a pro-enterprise agenda has been put into reverse gear."