What Are We Going To Do About George?

George Osborne delivers his Autumn Statement to a packed House of Commons

George Osborne delivers his Autumn Statement to a packed House of Commons

The news wires are burning with reports that the Chancellor, George Osborne, has gone completely doolally. In delivering an Autumn Statement that eviscerated house buyers with aspirations of acquiring property worth more than £935,000 he fired a financial exocet directly into the centre of his parties core constituency. The opposition can't believe their luck as they leave the chamber sniggering to each other.

The rate for property at say the £1.5m price point gives the buyer the unwelcome prospect of coughing up £93,750 big ones; that's as near as damn it £190,000 (actually higher), of pre tax income or a 6.25% blended rate of stamp which is scaled through the above levels. Things get interesting further up the ladder with a £3m property attracting a 9.125% blended rate. 



The £2m+ property market ground to a halt months ago because of political uncertainty. Most people though obviously couldn't care less. Apart from that is, those who rely on such transactions to fuel their own removal, decorating, building, plumbing and so on businesses. The point is, as I never tire of saying, these idiots at the Treasury simply cannot or will not focus on freeing up the economy. This is but one example. The overall tax take will anyway, fall.

I'm sure too that distortions will quickly develop in the market which at the higher price points will simply freeze up and that will have a trickle down effect with some properties becoming overvalued while others find a lower point of equilibrium. You'll probably also see a rush of planning applications to split up houses into two or more flats. 

The net beneficiary of this will again be UKIP who I'm quite sure will benefit from additional donations from frustrated property sellers and their votes....... along with those coming from citizens with laughable broadband, bins that are emptied but once a fortnight, commuters who now cough up 5-7 grand annually to get to work, redundant soldiers, (they haven't cut government departments or the civil service by 23% have they?), and so on.

So Tories, keep up the entertainment for your Labour colleagues. Build expensive railways to nowhere through your core voters homes, then start fracking under them and now over-tax them. It's so original, why hasn't it been done before? Even the old class warrior Gordon couldn't have dreamt this lot up.

On reflection, Treasury Officials agreed they might have chosen the Stamp Duty Rise Focus group with more care

When Help-to-Buy Will Become Just "Help!"

The Coalition make a free gift to Labour

We learn with some incredulity that house prices rose in London by 10%, up £50,484 to an average of £544,232, in October; according to a Rightmove survey. No such boom exists outside the M25 however where the real economy remains much more muted. These ridiculous ramps within London aren’t a good thing, especially for the buyers, no matter how much politicians herald a new coming of economic prosperity. Unfortunately, it’s more likely a mendacious electioneering Jedi Mind Trick which will have consequences.... it always does.

On a national level, accelerating house prices in London are unhelpful lest they influence the Bank of England’s interest rate decision making. Mr Carney of course could introduce special measures for separate lending criteria within the London conurbation from the rest of the country. There is no reason why this should not be done and there will be some head scratching going on in the Carney inner circle. Citizens in the North West, North East or South West should hardly pay the price for the London market taking off like an unguided missile.

The Cameron and Osborne Help-To-Buy scheme which offers buyers interest free loans for 20% of the house price and a government guarantee to lenders of 15% will not correct in their words, “a mortgage market failure.” It will make it much, much worse.

It won’t surprise many readers to learn that UK houses have never been more expensive relative to average earnings. They have yet to revert to the long term average and were last at these stretched levels just before the crisis. So, where on earth does the logic come from that suggests encouraging young singles, many of whom are weighed down by student debt, and young married couples is a good thing?

The whole housing lift off appears anyway, contrived. Lloyds Bank (or rather its major shareholder, the Government), which in practice is a geared play on UK housing, benefited from positive housing headlines when £3.21bn shares were sold in an offering in September at 75p. Moreover, as another in a series of blatant electioneering bribes it appears too convenient and obvious by half. If the clowns in the coalition think the population is going to be cheered as they’re reading their new fuel estimates for the winter by the fact that a four bedroom house in Fulham went up by two hundred  grand in September then they are very much mistaken.

 

 "don't call me Stupid.."

Some, if not many buyers will be helped by their parents. For the most wealthy section of society to exploit an opportunity is not unlawful nor is it immoral but it hardly helps those at the bottom of the pile or even half way up the ladder. Lighting a fire under house price inflation is unwise because the rise in house prices simply makes them more unaffordable, not less. The screaming lunacy about this racket is that Cameron himself said, “"The current system only allows people to buy homes if they have rich parents and that “is simply not fair“. (Why do I keep thinking of “don’t call me stupid,” Otto in A Fish Called Wanda.” 

no, it's not clever to buy houses when interest rates are at multi century lows 

Moreover, the resultant lift in interest rates will bury the already struggling consumer. It’s not smart or clever to borrow huge sums of money when interest rates are below the lowest level for 320 years. To encourage them to do so is just stupid and irresponsible.

Incidentally, one might also ask if anyone has considered which direction prices will go when the subsidy is pulled. Great choice here, higher interest rates or negative equity. Sounds like a great plan.

There is only one way to help affordability and that is to increase supply, especially at the young marrieds / first time buyer end of the market. The government’s role here is in long term planning and infrastructure; something that Neville Chamberlain understood as chancellor in the 1930’s. If the Coalition was serious about wealth creation it would avoid quick illusory fixes, the implications of which they barely understand, and they would focus on economic growth and that means tax cuts. If they want to be creative for the young, they can do something about the penal rates of travel in the UK which force individuals to spend considerable amounts of their income on getting to and from their place of work.

Osborne; Gliding Down The Dark Side of the Laffer Curve

George Osborne gives his Autumn statement today in which he is likely to give us the good news that UK public sector net debt in Sept 2011 was £966.8 billion, equivalent to 62.6 per cent of GDP. This excludes financial sector intervention.

If we include all financial sector intervention is included (e.g. Royal Bank of Scotland, Lloyds), the Net debt was £2266.3 billion (148.0 per cent of GDP).

That gives us a hefty interest bill this year of £48.6 bn (3% of GDP).

He is also likely to tell us that his original plan of tax rises and cost cutting to take us to salvation has taken the trajectory which, on a plane, would see the oxygen masks falling and the passengers donning life jackets. This is because there was a fundamental flaw in the plan and that was, (in the words of Black Adder), the plan was bollocks.

Government cost cutting has been insipid and half hearted. A sense of urgency has been lacking from the very start and as we've discussed on multiple occasions, what should have been a brutal but cathartic exercise in descaling government has been diluted many times over by political dogma and a failure of political courage. Instead of amputation, we're slowly bleeding to death. I expected entire government departments that are surplus to requirement to be axed; instead, the services have faced a vicious scythe and precious little else. 

Having dodged the early opportunity for which the electorate might have forgiven the government, Osborne, pushed along by the Liberals, resorted to draconian tax increases which are strangling the consumer and therefore the economy. It's all very well Vince Cable, possibly the most inept individual ever to walk down Whitehall, taking a "tax them till they squeal," approach but here's a newsflash Vince; the poor don't pay any more and nor do the very rich. The middle class, the spending engine of the economy, are on their knees. A real rate in the order of 60% is the financial equivalent of euthanasia.

Some may contend that high rates of taxation are bad for entrepreneurs. Nothing could be further from the truth. Every week I meet people who are setting up their own businesses and becoming self employed. Only, they're not employing anyone, they're mostly doing the same job but switching from PAYE and halving their tax rate in the process. Actually, it's madness not to.

This is an example of the Laffer Curve at work. So George, I reckon you're well past the optimal point of taxation, the point of equilibrium, and you're gliding down the other side.

 

If today all we hear about is help for small business then you're missing the point; you're treating the symptom not the cause. 

A brave man would slash the higher rate, all the way to 35%. A genius would introduce a flat rate for all of 20% on a six month trial basis. Inward investment would turn into a deluge, Europeans would head here by the planeload, businesses would flower and people would spend. 

This is important because the level of debt in itself is not the big problem, (it's was very much higher in post war Britain); it's an abscence of a commensurate level of growth which is killing us.

Moreover, there is one more important point to make. Europe is in disarray. Germany took full advantage of our industrial problems in the sixties and seventies to move into and exploit our tradtional markets. We now have a generational opportunity now to restore the economic balance against our competitors. If we only stand off and rely on falling tax receipts and marginal spending cuts we risk being dragged down with the rest of them. 

 

 

RBS & The Stupid Club

 

Talking of stupid people, oh look there's RBS back on the radar again. Just when you thought the circle of insanity couldn't possibly strain credulity any more than it has over the last couple of years, we learn yet again how laughably naive it is to underestimate the capacity of this organisation to undershoot even the most modest expectations.

In this instance, we learn via David Malone of an article in the Irish Independent that RBS are thought to have lent financial basket case Bank of Ireland €2.9bn in fresh short-term funding.

As Malone points out, (here), "of course RBS is owned by you and me. So a British bank which was nationalised to save it from insolvency, is now lending to an Irish bank to save it from insolvency and being nationalised."

Importantly, Malone goes on to speculate, " we have to entertain the possibility that RBS is lending to cover larger losses if BoI was to fail. RBS is one of the British banks I have long suspected was heavily exposed to Ireland. I think RBS is trying to save itself via this deal. The banks call it a loan. I see it as a bail out. The two states are using private banks as cover."

Now the common or garden taxpayer, he's the majority owner of RBS and convenient backstop when RBS blow up again, knows little about any of this; he ought to, a few more alert people on the Outrage Bus just might help restrict some of these activities. 

The same common or garden taxpayer, that would be you and me, are the very individuals that RBS are enthusiastically charging up to 17% APR for personal loans which, by any standard, borders on usury when the Base Rate is 0.5%.

George Osborne and David Cameron can wring their hands about growth as much as they like but the economy will not grow when it is being strangled at birth. Lending to barely solvent Irish banks at 2.76% above LIBOR while charging much better risk individuals 17% is just stupid. Add penal tax rates, galloping inflation in essentials, (food, energy, travel etc), and cash in short supply and you have all the ingrediants for big political swings not just here but across the EU. With youth unemployment mushrooming across many member states, and apathy reigning amongst the older generations, cash in very short supply, conditions are moving rapidly towards those in Germany in the 1930s.

As for RBS, they ought to be firmly in the business of derisking and breaking themselves up into their constituent parts, none of which was particularly special on their own before but my goodness 2+2 didn't make 4 never mind 5 when added up by Goodwin. Separating investment banks from retail banks is about the only crusade that Vince Cable has got right. 

We can only hope then, that there are no more rocks out there for................ oh bugger!

 

 

MC's Big Idea

It was with a feeling of detached bemusement that I watched Labour catapult themselves into obscurity last week when they elected Ed Miliband as their new leader. "Another policy wonk who has spent two minutes in Parliament without doing any real work in his life," I muttered to myself. Moreover, he looks like a badly made Thunderbird puppet and talks in a voice you'd expect from a voice synthesiser made on Blue Peter with spare bits from the kitchen.

This week though, I've taken the same detached look at the Tories and have more or less come to the same conclusion. This of course, is grossly unfair on badly made puppets who at least, in every crisis appeared to have a workable plan and inspired confidence in every eight year old parked in front of the television.

Watching the Boy Osborne alienate virtually every mother in the country has been pitiful; I almost feel sorry for him. Wherever he goes, whatever he does will mean nothing now because it will be lost in a burning cauldron of resentment from the Mothers Union; even Mrs Flashbang can remember his name.

Of course, it's not the cut in itself which is causing the damage. It's the poorly thought out execution which shouts "unfair," which is causing the damage. Similarly, the £26,000 cap on benefits isn't particularly well thought out. It's the equivalent of a basic salary of over £40,000 and of course, with no travel costs and council tax to pay it's a not unattractive number.

So, with four months already wasted the government are stumbling along with no real initiatives to stimulate growth, stabilise the economy and ward off the very real threat of depression. Policy makers across the world have deployed "shock and awe," to steady the financial sector and prevent fiscal melt down. They have thrown kerosene at the problem in the form of fiscal stimulas in an attempt to stimulate demand. It hasn't worked so they're thinking about getting a bigger bucket of kerozene and trying again, all the while debasing their currencies and lighting the fuse for an inflation storm down the road. That path hasn't worked in Japan and it won't work here.

Where then is the clarity and originality of thought that will stir the country and provide incentives to get the economy moving forward; you can't just keep beating people, no matter how much the detached Vince Cable would like to. Don't strain yourself George, I'm here to help and return to an idea which I wrote about some months ago.

The virtue of this plan is it's simplicity and mutual benefit to all.

- Issue a 30 year 4.5% National Mortgage Gilt

- Issue fixed 30 year 4.75% mortgages

The benefits would include -

- Stabilising the housing market

- Allowing households to plan their house purchase and debt management over the long term

- Kick starting badly needed replenishment of our national housing stock

- Getting the building industry back to work

- Recreating the enfranchisement of all levels of society into home ownership.

- Gives entities with long term liabilities, (pension funds, insurance companies etc), a means to obtain a sovereign rated bond with a good return.

The only objections to doing this will come from vested interests. Given RBS and Lloyds are majority owned by the taxpayer they will mostly do as they're told and the rest can either get on board or ship out and face the consequences.......... ie, no future government business or support. There could be restrictions on second homes and so on, to prevent creating more bubbles, but they're not material to the central thrust at this stage.

There would also be a profound change in the perception not just of the recession amongst householders but also of the government. Everyone needs a bit of sunshine in their lives.

Go on then George, there's the ball....... run with it.

"Way Off The Reservation"

 

There I was, thinking that those mendacious, self serving reptiles that made up New Labour constituted about the worst government we could ever have imagined, when up pops Dr Liam Fox, Minister for Defence. Now some passing observers might think Dr Liam Fox to be a weapons grade twit..... I don't, he's much, much worse than that. He's stupid, incompetent and short sighted. Bigging himself up with  talk of aggressive defence cuts, which suit his political moment does no one any favours. Not the country that has entrusted it's defence to this coalition nor the Armed Forces themselves who depend on good political husbandry.

His recent contention that the country can't afford Armed Forces of the current size is simply a made up on the spot excuse for the bloodletting that is to follow. The percentage of GDP spent on defence is around 2.4%, much less than the 4.4% spent in 1988. In fact, we spend less expressed in this way than at any time since the thirties. It's not that the country can't afford the current modest defence spend; it's simply that it either doesn't care to match previous spend or Westminster doesn't want to. Jedibeeftrix discusses just this point with more lucidity and thought than we're accustomed to hearing from Westminster, here.

Fox's recent statement about Challenger main battle tanks beggars belief,

"What do the Challenger tanks in Germany and the costs of maintaining them and the personnel required to to train for them, what does that contribute to what’s happening in Afghanistan."

As Think Defence readily highlight, the only reason Challenger isn't in Afghanistan is because the MOD won't fund them, despite other Armies having had success with armour. Moreover, soldiers from armoured regiments in Germany are constantly rotating through Afghanistan, as the most recent casualty lists demonstrate. On a more simple level, the residents of Wiltshire and Dorset may have something to say when the tanks come home - 60 tons of Challenger rolling through your village shaking the houses to bits isn't part of the picture postcard country thing that most people aspire to. Better to leave them in Germany where the infrastructure exists to transport these things to and from training areas.

Rumours being promulgated by the coalition into the media of a 25% manpower cut to the Army are no doubt a primitive ploy to make us relieved when a cut of 10-15% is announced. Of all the short sighted thinking abounding in the defence debate, any cut to current modest manning levels wins hands down, the "Neville Chamberlain, Peace in Our Time," award for gross negligence and stupidity. Reducing the standing Army to between 75,000 and 90,000 just won't cut it and will place an unsustainable burden on the men and women, (and their families), especially given our politicians readiness to commit forces to operations which they're not prepared to pay for.

Just to give you some perspective, at the very height of the Troubles in 1972, we had 32,000 men in Ulster alone. Oh and by the way, that little lot is simmering away nicely once again.

Just when I thought the disjointed and blurred thinking couldn't get any worse up pops the Boy Osborne with his latest lurch into fantasyland with his contention that the cost of Trident must be absorbed by the defence budget.

No, not true you idle idiot. Trident is a political instrument. Trident keeps the PM at the world top table and is the UK Governments ultimate deterrent. It can only be deployed and fired by the Prime Minister and has no tactical value to the Army, Navy or Air Force whatsoever. In short, anything to do with Trident is above the pay grade of anyone in uniform so mostly, don't suggest for a moment that the services have any input or responsibility for the decision making process. Given the choice between, infantry battalions, ships and aircraft or Trident, the decision for the service chiefs would be a very straight forward one. Unfortunately, telling Slick Dave that he is no longer part of the Global Big Boys Club probably won't go down too well but then Boy Osborne knows that. He doesn't stop there though in his newly discovered desire to trash and embarrass those that stand for everything he will never be. Back over to the sharped eyed team at Think Defence who highlight the spend on, "urgently needed contraceptive supplies to Uganda." This is all very reminiscent of Brown and his contempt for the services, but which comes no where near my contempt for both the current chancellor and his predecessor.

What is becoming crystal clear is that there is nothing strategic about this review at all. This is an exercise in slashing the defence spend in a slap dash and ill thought out way, which is scarily reminiscent of the last cuts inflicted on the Army by the last Conservative administration. Then, they happily eviscerated Army medical services amongst other things, just shortly before we embarked on 15 years of operations.

Meanwhile, our men are still being sent to the meat grinder that is Helmund, even though no politician has yet succeeded in articulating why we're there or what our strategy is. I follow events quite closely and I can't figure it out so I quite understand why the man in the street is becoming disenchanted with the endless stream of coffins returning. At a rough guess we can probably expect at least a further 50-70 this year and many more life changing injuries, which is obviously not the ideal backdrop to telling these men and their families that after everything that's happened, their regiments may be chopped and "by the way, we might make you redundant too."

What is also clear is the pernicious and unashamed use of spin in this and everything else the government is doing. The approach appears to be, give them good news like sorting out the wheelie bins and getting police uniforms on the streets whilst we knife up the guys who can't speak up. I note their latest wheeze is to offer local referendums on council budget overspend; I bet they won't offer a referendum on defence cuts though.

Well, I didn't vote for this and I very much doubt that many conservative supporters did. To use an American phrase, Cameron, Osborne and Fox "are going way off the reservation."  The things they are currently suggesting are not only diametrically opposed to everything they said and suggested in opposition but will have only one net result and that will be more casualties through under manning and under funding. Everything that has impacted the services ability to conduct operations efficiently in Iraq and Afghanistan will become manifestly more acute. Forget the "Strategic review," hype. This will be all about tooling up for a last go at Afghanistan before we inevitably leave. The  result will be more dead, an Army which will  be incorrectly equipped and formatted for whatever the next operation might be and a Navy which in all likelihood will cease to be viable.

I simply can't adequately express my contempt for these people. If they go ahead I'll find a way of hitting back and that will be where it hurts them; time to look at the UKIP manifesto. Could be the next big thing in Haslemere. Bastards.

Surprise!

 

Ever quietly work yourself up into a state of excitement over a prospective purchase, receiving a gift or travelling somewhere only to have your warm anticipation blown away when it failed to meet your inflated or perhaps misguided expectations. Mmmm, me too; it was my first kiss actually but I digress. The General Election is thundering down the road toward us at a date in or before May. Consider these three anecdotal stories I've heard, just today, from friends.

The wife of a chum received a cheque from the revenue for £25. In the accompanying letter she was told that she would receive the balance of the £170 of her rebate at the end of the tax year. That may of course be a cock up, a reflection of the coffers being empty or something else.

I said to an insolvency friend today, "You must be rushed off your feet at the moment." " Not really," he replied, "The banks are keeping as many firms going as possible, "until the end of the tax year."" Note, HMG owns big stakes in RBS and Lloyds.

Another friend told me how he had bought a commercial facility from a bank. The bank however, insisted that as part of the purchase arrangement he rent it from them and that the sale didn't complete, "until the end of the tax year." That obviously suits my friend and I guess the bank who won't need to write down the probable loss on the property until after this tax year. 

So what? It's always dangerous to make assumptions but if you were George Osborne and arrived on your first day at the Treasury after the election, mad eager keen to play with all the toys in your new sandpit, it could be ever so slightly disappointing if you discovered the toys weren't quite what you expected. 

If the revenue has a big outflow of funds after April, if unstable firms are finally given a headshot after April and if the banks suddenly start doing the commercial property write downs that have so far been avoided during the financial crisis then the Tories could be on the receiving end of the biggest financial hospital pass in history. They have probably worked out that things are worse than Labour will admit to before an election but the surprise will come when they see the scale of the mess.

This what I found when I searched for George's CV,

"Career 1994: Conservative research department 1994-97: special adviser at the Ministry of Agriculture 1997-2001: speechwriter and political adviser to William Hague 2001: became MP for Tatton 2004: Shadow Chief Secretary to the Treasury 2005: Shadow Chancellor"

No, I can't spot the bits that suggest any trace of experience, knowledge or skill sets that suggest his suitability as Chancellor. Let's hope his hidden talents rise to the surface when the moment arrives or we'll all be up the creek and I'm not seeing any paddles on sale. Still, none of the current shower of muppets have any aptitude for running the country; I wouldn't trust any to run a bath. How bad could it get? Oh dear..........