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Posts Tagged ‘Economic policy’

Loans still too dear, says Darling

July 27th, 2009 | No Comments

Chancellor says small and medium-sized businesses are still paying too much for bank loans that remain in short supply

British bank chiefs will come under renewed pressure today to make more credit available to small and medium-sized businesses in a crunch meeting with the chancellor, Alistair Darling.

Some of the country’s most powerful banking executives are said to be squaring up for a new battle after yesterday rejecting Darling’s complaint that struggling businesses were still paying too much for bank loans that remain in short supply.

Stung by the chancellor’s renewed criticism ahead of today’s meetings with the Treasury, the British Bankers’ Association took to the airwaves yesterday to insist it is doing its best in hard times for recession-hit customers.

Lending to small businesses rose by £391m in June as almost 50,000 new small business relationships were established with banks, the industry group said. Deposits from small businesses also grew by £577m, perhaps reflecting “improved business confidence”, the BBA said.

But John McFall, the chairman of the Treasury select committee, today warned that MPs would expect banks to make their lending agreements more transparent.

He told BBC Radio 4′s Today programme: “There is a tension between what the banks are doing and what the governor of the Bank of England wants to do. The banks want to sustain the level of profitability, so build up the capital.

“There is the government’s and the governor’s fear that the recovery will be jeopardised by an inadequate provision of credit and increased cost of borrowing, and the anecdotal evidence that’s been coming to the select committee for the past number of months has been … that it’s small and medium sized businesses that are losing out.

“The Bank of England report that came out last week said quite clearly that there is less credit available for businesses and it’s more expensive. In May, lending was negative – it went down 5.4%. These are the facts. The banks and the government need to get round the table today to ensure that we have this increased lending.”

McFall said he wanted to see a plan put in place to ensure “that lending agreements are transparent, so we can see it in black and white”.

Angela Knight of the British Banking Association told the programme: “Overall lending to British businesses has continued to increase. Equally, it is a very difficult market out there, the recession is a big one and some sectors are hit more than others.”

But she added: “Demand [for credit] has dropped off and we need to address this as well.”

With the economy’s second quarter growth figures worse than predicted – a 0.8% contraction in the three months up to June – Darling had used the platform provided by BBC1′s The Andrew Marr Show yesterday to protest that “what companies are being charged does seem to have gone up relative to what banks are actually having to pay because of the fact we’ve got very low interest rates”, which are currently 0.5%. “They’ve got to live up to their promises,” he emphasised.

Public hostility towards the banks has focused on the return of high-flying bonuses in the investment banking sector, despite the multi-billion pound rescues by the taxpayer which – Darling and David Cameron both admitted yesterday – will mean cuts in public spending.

In Belfast, a Northern Ireland MP said he would name and shame some of the province’s banks over their failure to help out small businesses. Alasdair McDonnell, the SDLP’s deputy leader and the MP for South Belfast, is to hand over a dossier on the local banks to the prime minister later this week. He complained that their failure had “pushed a number of viable local businesses over the edge – with many more on the precipice. Banks could – and should – be providing a better service to the public.”

The chancellor receives similar complaints whenever he meets small business leaders. He acknowledged on TV that he is also asking the banks to rebuild their balance sheets to make them stronger than before the financial crisis.

But he added: “People have got to understand in the banks: we did not stabilise the banking system, rescue some banks, out of some sort of charitable act or because we felt sorry for them. Far from it. We did it because if you don’t have a banking system that provides credit for businesses, then you will make recovery and prosperity after that much, much more difficult.”

Opposition politicians complained that ministers had dithered on banking reform. Vincent Cable, the Liberal Democrats’ Treasury spokesman, said: “It is amazing that the chancellor has only just woken up to the fact that this is a problem.” Mark Hoban, a shadow Treasury minister, said: “We have been warning about the lending crisis, including in government-owned banks, for months.”

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Darling presses banks on lending

July 26th, 2009 | No Comments

Chancellor says he is ‘extremely concerned’ about cost of borrowing remaining high while interest rates are low

Alistair Darling today called on banks to improve lending to businesses, saying he was “extremely concerned” about the cost of borrowing.

Bank bosses are to be summoned to explain why they are charging more for credit when interest rates are at historically low levels. The chancellor suggested they had failed to keep promises to improve lending facilities in return for taxpayer support.

He said banks had not been rescued as “some sort of charitable act … We did it because if you don’t have a banking system that creates credit for businesses then you will make recovery and prosperity after that much more difficult.”

Speaking on BBC1′s Andrew Marr Show, Darling acknowledged that banks needed to rebuild their balance sheets in the aftermath of the financial crisis. But he said: “At the same time, because of the particular circumstances we are in now, because of the fact we’ve got this recession, we also need them to lend money and that’s why we recapitalised them to do that.

“That means they’ve got to live up to the promises they’ve made. That’s why we will be going through with each individual bank asking them why is it, at a time when the cost of borrowing is coming down, it would appear that the cost to small business appears to have gone up? We’re playing our part; the banks have got to understand that the public will not understand it if they do not play their part to the full.”

Angela Knight, chief executive of the British Bankers’ Association, said banks were improving lending. “As far as the major banks are concerned they are lending, and increasing their lending,” she told BBC Radio 4′s The World This Weekend.

On interest rates, she said the base rate did not represent the real cost of money. “People say, ‘look, base rate is down to 0.5%, so why do you charge what you do for lending?’ The answer to that is that you can’t get the money at that rate. Base rate is not the money which a bank pays.”

Knight said the wholesale price of money was about twice that of the Bank of England rate. “But also, what there isn’t is capacity in the wholesale market because it’s credit crunch worldwide, so in fact the cost to the banks has gone up.”

Vince Cable, the Liberal Democrats’ spokesman on Treasury affairs, said: “It is amazing that the chancellor of the exchequer has only just woken up to the fact that this is a problem. We have been warning about the lending crisis, including in government-owned banks, for months.

“The problem isn’t just about the cost of borrowing, but the difficulties which many companies who are solvent, with a good credit history, have in obtaining bank credit without unreasonable demands for personal security and charges. It’s time the government stopped being a passive investor in the nationalised and semi-nationalised banks and ensured that they maintain lending to good British companies for the wider interest of the national economy.”

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This is how we let it happen, Ma’am …

July 25th, 2009 | No Comments

A group of eminent economists has written to the Queen explaining why no one foresaw the timing, extent and severity of the recession.

The three-page missive, which blames “a failure of the collective imagination of many bright people”, was sent after the Queen asked, during a visit to the London School of Economics, why no one had predicted the credit crunch.

Signed by LSE professor Tim Besley, a member of the Bank of England monetary policy committee, and the eminent historian of government Peter Hennessy, the letter, a copy of which has been obtained by the Observer, tells of the “psychology of denial” that gripped the financial and political world in the run-up to the crisis.

The content was discussed at a seminar at the British Academy in June that was attended by economic heavyweights including Treasury permanent secretary Nick MacPherson, Goldman Sachs chief economist Jim O’Neill and Observer economics columnist William Keegan. The letter explains that as low interest rates made borrowing cheap, the “feelgood factor” masked how out-of-kilter the world economy had become beneath the surface, with some countries, such as the United States, running up enormous debts by borrowing from others, including China and the oil-rich Middle Eastern states, that were sitting on vast piles of cash.

Despite these yawning imbalances, they say, “financial wizards” managed to convince themselves and the world’s politicians that they had found clever ways to spread risk throughout financial markets – whereas “it is difficult to recall a greater example of wishful thinking combined with hubris”.

“Everyone seemed to be doing their own job properly on its own merit. And according to standard measures of success, they were often doing it well,” they say. “The failure was to see how collectively this added up to a series of interconnected imbalances over which no single authority had jurisdiction.”

That meant when the reckoning came it was extreme, starting in summer 2007 and culminating in the near-collapse of the entire world financial system after the bankruptcy of Lehman Brothers last autumn.

“In summary, Your Majesty,” they conclude, “the failure to foresee the timing, extent and severity of the crisis and to head it off, while it had many causes, was principally a failure of the collective imagination of many bright people, both in this country and internationally, to understand the risks to the system as a whole.”

Besley stressed that the experts had not been in “finger-wagging mode” and had agreed that the causes of the credit crunch were extremely complex. “There was a very complicated, interconnected set of issues, rather than one particular person or one particular institution.”

Other experts at the seminar last month included Paul Tucker, deputy governor of the Bank of England, Vernon Bogdanor, the constitutional expert from Oxford University, and HSBC’s chief economist, Stephen King.

A spokesman for Buckingham Palace said the Queen has displayed a particular interest in the causes of the recession, summoning Bank of England governor Mervyn King to a private audience earlier this year to explain what he was doing to tackle it.

Official figures published on Friday revealed that Britain’s economy has now been contracting for 15 months, and the recession is deeper than any since the 1930s, outside of wartime.

Robin Jackson, chief executive and secretary of the British Academy, said: “The global recession is a huge development, and it is reasonable to ask to what extent it could have been foreseen. What’s more, we can’t say ‘never again’ if we don’t fully understand what occurred. The academy forum was an opportunity to get an exceptional range of experts, participants and commentators in one room, sifting fact from fiction and shedding light on what had gone on. We hope Her Majesty – and indeed others – will find our letter informative.”

The academy plans to hold a second seminar later in the year to ask how best to prevent another such crisis occurring. Besley denied that economics as a profession had been discredited by the scale of the crisis, but admitted that unconventional ideas – about how herd psychology and bouts of irrationality can grip financial markets, for example – had sometimes received “less play” during the boom years.

He said the academy hopes to provide a forum for airing economic differences: “What we need is a forum where people can come together on a very open basis, to provide challenges and have a debate.”

Professor Luis Garicano, to whom the Queen directed her question when she visited the LSE in November last year, said: “She seemed very interested, and she asked me: ‘How come nobody could foresee it?’ I think the main answer is that people were doing what they were paid to do, and behaved according to their incentives, but in many cases they were being paid to do the wrong things from society’s perspective.”

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I’ll be hate figure, says top Tory

July 24th, 2009 | No Comments

Prepare for rapid post-election budget and deep spending cuts – Hammond

David Cameron may be forced to stage a rapid post-election budget to calm the markets and prevent a drop in Britain’s credit rating in the first days of a Tory government, Philip Hammond, the shadow Treasury chief secretary, warns in a Guardian interview today.

Anticipating an era of deep short-term cuts in public spending, Hammond urges voters to give the Conservatives a big majority so a new government can act boldly to cut the public debt, warning that the public finances are in such a state “the worst outcome for Britain would be an unclear political result at the election”.

Hammond, destined to be the man to rein in public spending if the Tories gain power, also concedes he is “likely to become a great figure to pin up on the dartboard, and throw darts at. I am sure there will be short-term pain and brickbats.”

But he argues: “It is absolutely not the case that people in the public services are dreading this, or saying ‘oh my God, what is going to happen?’ ” He claims civil servants are preparing to make cuts without waiting for instructions from on high. “There is a sense of liberation that we are going to empower public sector professionals to undertake the reform.”

Setting out Tory ideas, Hammond discloses there will have to be a budget either soon after a spring election, or in the autumn, so the Conservatives can start to rein in public spending next year.

He warns that Britain’s credit-worthiness could be downgraded, pushing the economy into crisis. Such a move, which has been threatened by the international credit rating agency Standard and Poor’s, would make it much more expensive to pay back the national debt, which this week reached a record £799bn.

He said: “We have got this Damocles’ sword of Standard and Poor’s hanging over us, with the commitment they have made to review Britain’s credit rating in the summer of 2010 after the general election. Everybody in Britain has a vital interest in ensuring that the triple A credit rating agency is maintained.”

“It is absolutely essential that we send a signal to the markets that we have a credible plan to resolve the fiscal crisis and the debt crisis over a sensible period time,” he says.

He warns that it would be dangerous to assume the government could do whatever it likes without getting a market reaction. Implying that the Tories will regard it as necessary to hold an emergency budget, he says: “I think the markets will expect to see early action because we have made it clear that we will start the process in 2010 whereas Labour has said it won’t start the process until 2011-12. Early action adds credibility.”

Hammond was speaking as the latest economic figures publishedtoday showed worse than expected second quarter growth figures, with a fall of 0.8%, worse than the consensus forecast of a 0.3% fall.

His remarks come after analysis for the Guardian, carried out by the Institute for Fiscal Studies, showed that Britain would face spending cuts of more than 16% to key public services if Labour and the Tories live up to their pledge of protecting schools, hospitals and defence.

He said one of the first tasks of an incoming Treasury team, in examining when to hold the special budget will be the reaction of the markets, and whether the economy is “going to get anywhere near” the government’s forecast of 3.5 % growth in 2011.

Hammond also discloses that the Conservatives may try to speed up the Labour timetable to reduce the deficit, and intends to place most of the burden for that deficit reduction on spending cuts, because the current level of projected debt in relation to GDP – about 56% – is unsustainable. He also says he is worried that there are not enough civil servants in Whitehall with experience of cutting services. “There are a lot of civil servants in key posts who have never had to deal with the spending restraint … likely to be required now,” he says.

He also rejects growing right wing calls to drop David Cameron’s pledge that the NHS budget will be protected from cuts and rise at least in line with inflation.

He admits that he had come to the issue of ring-fencing the NHS budget as a sceptic on the basis that a lot of money had gone in and productivity had fallen. But he said:”The pressure of demography is so inexorable that the NHS is going to struggle to deliver the kind of service people expect even with modest real terms increases in budgets.”

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The red Tory delusion

July 23rd, 2009 | No Comments

These outrider visions suit Cameron very nicely – just don’t expect him to put them into action

Political cross-dressing is familiar, but so-called Red Tories are indulging in something more like political reassignment surgery. The leading light is Phillip Blond – who clings to David Cameron’s coat-tails while shunning the Conservative creed of coming to terms with the world as it is. He damns Labour for failing to tame big business or close the wealth gap, suggesting the Tories can do better by developing the Cameroonian insight that “there is such a thing as society, but it’s not the same as the state”.

With spending cuts on the way, Cameron can only benefit from an intellectual outrider who promotes a Tory prescription that goes beyond the axe. So in January he spoke at the launch of Blond’s work at Demos, a thinktank that has been courting modernising Conservatives. It has recently been announced Blond is leaving Demos, but he continues to attract sympathetic attention for his party in naturally suspicious quarters – including in the Guardian.

Blond recently proposed “recapitalising the poor“. Even putting aside the irresistible question of how much capital the poor had in the first place, the detail is easy to pick at. Instead of blowing a hole in the government’s books, he conjectures the banking bailout will produce eventual returns for Whitehall to funnel to the dispossessed. He imagines cash-strapped councils have money to hand back to already subsidised tenants, and proposes extending means testing while railing against the poverty trap it creates.

Blond is not a policy wonk but a theologian. Treasury officials would make mincemeat of his detailed plans but, on the big ideas, he has interesting things to say. He highlights pre-1979 Tory traditions of responsibility to the community, and argues that all the main parties are beset by a narrowing liberalism, which imagines people as atomised consumers, not citizens. From that vantage point, he says, the role of small businesses simply drops out of view. He proposes rewriting competition rules, so community life can be considered alongside the price of fish in decisions about whether to license yet another Tesco.

While this policy is attractive, a Tory government would struggle to implement it, because it clashes with the big Conservative business interests. We arrive at the nub of the argument for ingesting Red Toryism with a shovel-load of salt. Clever people, of whom Blond is indubitably one, are prone to over-intellectualising politics – failing to grasp that it is a game where interests trump ideas. In the Tory party, the weightiest interest is property – not the abstract notion, but the real security of those who happen to own it.

The hold of property is not some recent aberration, dating from the Iron Lady’s protection of “our people”. Lord Salisbury saw property’s defence as his central aim – there was “always wealth”, he said. A generation later, Bonar Law promised to “leave things alone” rather than meddle in what different classes owned. Even the more conciliatory Stanley Baldwin pursued deflation, which protected rentiers at the expense of the working man. Throughout, Conservatives have stood against organised labour – which embodies the non-state mutualism that Blond is so keen on but threatens the owners of industry.

Blond ignores all of this, and so fails to comprehend what the Conservative party is – and what it is set to remain. The instinct to approach policy from the point of view of the investor means the Tories have not, as Blond urges, ditched mail privatisation. Instead it is Labour, driven by its own union interests, that has kicked privatisation into touch. Likewise, the overriding need to serve “our people” explains why the Tories remain committed to an inheritance tax cut, and why each Labour budget redistributes a little to the poor.

Inequality has remained stubbornly high despite this because forces such as de-unionisation and privatisation remain powerful. These arguably benefit consumers, but the Tories originally unleashed them at least in part because they served Conservative interests. The Red Tory idea that the party may reverse them now is delusional because – as Palmerston said – interests are eternal.

None of this means conservative intellectual attitudes lack merit – scepticism about what works, realism about human nature, and suspicion of the state have a great deal to commend them. It is also true that conservative interests can at times ally with progressive values. On personal liberty, a case can be made that the Conservatives are now the more progressive party. In the end, though, every party is hostage to its “own people”, on the question of who gets what.

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Brown: Tories wouldn’t act on recession

July 22nd, 2009 | No Comments

Prime minister contrasts government action – which will ‘shorten the recession and reduce its impact’ – with the policies of opposition parties

Gordon Brown’s press conference – as it happened

Gordon Brown today accused the Conservatives and the Liberal Democrats of planning to “let the recession take its course” as he insisted the government had put a programme in place to weather the economic downturn.

At his monthly press conference in No 10, the last before he leaves London for August, the prime minister claimed “the action we have taken has saved probably half a million jobs from being lost” as he insisted “the government’s action will shorten the recession and reduce its impact”.

He said the great dividing line in British politics was that he was taking action while “the opposition parties would let the recession take its course”. The opposition said no to increasing spending now to tackle the recession, while Labour said yes, Brown said.

His government would be “judged by results” and in recent weeks had put in place conditions for long-term economic success, reforming public services, and promoting the growth of a low-carbon economy, Brown said.

Measures had been introduced, among other things, to ensure tougher regulation of banks, a shake-up of social care and schools, a bill to clean up politics and steps to make Britain the world leader in low emissions vehicles.

“We made a deliberate decision that in a recession you maintain capital spending throughout and spending on infrastructure … The evidence is that that is seeing results.”

No government had faced the two big crises of the economic crisis and the expenses scandal in parliament, Brown said. It was inevitable that people were angry but the government was taking action which would be felt in the longer-term.

“When people see these results and the action has been taken … Then I think people will see very clearly the choice between the parties.”

Some ministers believe Brown needs to be more open about the need for tough decisions on spending in the future ahead of a general election.

But today he said the general election would not be a “referendum” on the government but a choice between parties, and he was confident about the choice voters would make. “It has been a difficult year because we have had to take tough decisions and tough choices.”

Brown said Operation Panther’s Claw in Afghanistan is making “good progress” despite the criticisms of senior military figures and the Foreign Office minister Lord Malloch-Brown – hastily retracted today – about the lack of helicopters in Helmand province.

“I am satisfied that Operation Panther’s Claw has the resources it needs to be successful,” Brown said. “For the operation we are doing at the moment we have the helicopters that we need.”

Brown said: “I think the fact that it is making progress at the moment and yielding results already shows that that is the case. I am confident that we will bring this operation to a successful outcome. It is very important to recognise what the commanders are saying on the ground, the increase we have already made in helicopters, and what we are going to do in future months.”

He quoted a commander in Afghanistan who said: “It is a sad fact that helicopters wouldn’t have saved the lives lost last week.”

Britain was the second largest contributor in Afghanistan, Brown said, rejecting claims that he had turned down the military’s request for more troops in March. The number of troops had increased from 8,100 to 9,150, he said.

On swine flu, Brown told reporters that “robust plans” were in place to fight the virus, and measures were being taken in a “calm and organised and ordered way”.

Brown defended the long parliamentary recess, which started today and is not due to end until 12 October, by saying MPs had a duty to listen to their constituents.

Asked how he was going to spend his break, Brown said: “I am looking forward to a holiday with my children, and it will be in this country and not abroad. I want to catch up on a lot of sport because it has been a great summer of sport and I have missed too much of it.”

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Budget deficit hits record June high

July 22nd, 2009 | No Comments

Total government spending in June hit £49bn, up from £44.2bn a year earlier

Opposition parties were last night piling pressure on the government over Britain’s deteriorating public finances after falling tax revenues from recession-hit companies and consumers pushed the budget deficit to its highest for any June on record.

With tax and spending at the heart of the political fight between now and the general election, the Liberal Democrats and the Conservatives called on Alistair Darling to come clean about the options facing the country in the next parliament.

The Office for National Statistics (ONS) said public sector net borrowing – the gap between the exchequer’s tax take and its spending – stood at £13bn in June, slightly lower than City forecasts of £15.5bn, but the highest June deficit since records began in 1993. The £41.2bn borrowing in the three months to June was higher than for the entire year before the credit crunch started, and brought the total deficit over the last year up to £107bn.

The ONS said the corporation tax take from UK companies was down 14.1% in June from the same month last year, while VAT receipts fell 15.9% and income tax dropped 3.9%. While tax receipts have fallen, more and more people are claiming unemployment benefits. Government spending on social benefits has shot up 9.7% in the year to June.

The Lib Dem Treasury spokesman, Vince Cable, said the figures suggested that “even the chancellor’s eye-watering prediction of £175bn borrowing this year could be an understatement”.

He added: “With such a mismatch between government spending and receipts it is clear that in the longer term these levels of borrowing are not sustainable. If the chancellor expects to have any credibility, both with the markets and the public, he must be brutally honest about how he intends to deal with levels of borrowing. However, such a commitment to deal with the deficit cannot come from salami slicing key public services, but through an honest debate about what the state can and cannot afford to do.”

Philip Hammond, shadow chief secretary to the Treasury, said: “Gordon Brown’s debt crisis is getting worse by the month. With borrowing at record levels, why can’t he finally be straight with people and admit there will have to be public spending cuts?

“In just the last month alone, Gordon Brown has increased every person’s share of the national debt by £213 each.”

A Treasury spokesperson said: “Our plans to halve the deficit within five years are based on cautious assumptions about share prices, unemployment and the loss of output from the shock to the economy built into the budget forecasts. The latest monthly figures for public sector borrowing are in line with our forecast.”

Public sector net debt as a proportion of GDP now stands at 56.6% – the highest since records began in 1974.

David Kern, chief economist at the British Chambers of Commerce, said: “It would be wrong to tighten policy while the recession continues, but maintaining Britain’s international credibility requires a robust plan for restoring our public finances over the medium-term. This must focus on curtailing public spending across the board, while avoiding damaging measures that would harm wealthcreating businesses.”

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Government welcomes Nissan jobs

July 20th, 2009 | No Comments

Sunderland visit comes as government names north-east as Britain’s second low-carbon economic area

Carmaker Nissan has pledged to invest more than £200m in a new rechargeable battery factory in Sunderland boosting the north-east of England’s drive to become a leading centre for green technology.

The region hopes to swap a legacy of shipbuilding, steam engines and coalmining for a pioneering role in the manufacture of electric cars and lorries.

Nissan’s announcement of plans for a rechargeable lithium-ion battery plant was accompanied by Gordon Brown’s confirmation that the government is making the north-east the UK’s Low Carbon Economic Area specialising in “ultra-low carbon vehicles.”

Against a backdrop of job losses and unrelenting uncertainty for workers at UK car factories, the prime minister hailed Nissan’s new battery plant as a step towards economic recovery.

He sought to raise hopes the Japanese company could choose its north-east base for a new European green car operation over a rival facility in Spain.

“Nissan’s investment in a new battery plant and its hope to start producing electric vehicles here in Sunderland is great news for the local economy, creating up to 350 direct jobs and creating and safeguarding hundreds more in the associated supply chain,” said Brown.

“Sunderland could now be a strong contender to produce electric vehicles for Nissan in Europe, and we will continue to work with Nissan to ensure this happens.”

Visiting Nissan’s Sunderland plant, Business Secretary Peter Mandelson said the north-east was already a specialised region for green cars.

The region’s designation as a Low Carbon Economic Area will mean establishing a training centre to teach the manufacture and repair of green cars, creating a research and development hub which collates work from five universities on using low carbon cars and opening a test track to try out new vehicles.

The north-east is the second such “economic area” to be created by the government after the South West of England – a centre of marine and tidal energy schemes.

Mandelson hopes the north-east green cars project will attract foreign investment and secure the UK’s place as “a global leader in high-tech manufacturing and automotive industries.”

Local government officials hailed the Low Carbon initiative as potentially creating 10,000 jobs over five years – a huge morale boost to an area hit by the rapid decline of its manufacturing industry and wider economic turmoil.

Margaret Fay, chairman of the One North East regional development agency drew parallels with the north-east’s industrial heyday.

“The first steam engines came from the north-east, we are good at firsts. We were the centre of excellence all those years ago with Stephenson and the Rocket. It’s like history repeating itself for the next generation.”

“We see this as the next iteration of the north-east economy. We have been through the very heavy industries of shipbuilding, steel, coalmining etc… Clearly manufacturing is at the heart of what we have always done in the region and this takes us back into what really are our core competencies. But this is manufacturing for the future.”

The agency has aspirations to turn the north-east into Britain’s green car training centre as demand rises for mechanics able to fix a new breed of electric vehicles.

“The training centre will go right from basic training, through apprenticeships, right up to masters and PhD’s,” said Fay.

The planned research and development centre will look into aspects of electric cars such as how far they can travel between charges.

AA president Edmund King says his group will feed its research into both the training and research centres.

“It was important to get a motoring organisation involved because electric vehicles will only be successful if consumers use them, understand them and trust them,” said King.

He quotes AA research suggesting almost two-thirds of drivers would consider buying a more fuel efficient car. Drivers in the North East and Northern Ireland were most likely to consider buying a green car.

But others are more sceptical that electric cars are worthy of such “green” government investment. Stephen Glaister director of the RAC Foundation points out the power to charge batteries will most likely be generated from coal or gas. “I think it is entirely unclear whether electric cars have anything to offer.”

“This may be about being seen to do something, it may be about creating new jobs, but I imagine it’s very risky in terms of the particular technology they are going into. There’s a long history of governments supporting different bits of the motor industry and having them fail.”

North-eastern company Smith Electric Vehicles, the world’s largest manufacturer of electric commercial vehicles, has questions about the government’s green car plans for other reasons.

Managing director Geoff Allison was puzzled as to why the government was not looking at manufacturers’ more urgent needs.

“Here today, now, we need investment. We have got electric vehicles, we need volume orders, we need subsidies. We need incentive from the government to help us get commercial vehicles on the road quicker. “In Europe they are all way ahead of us in terms of acceptability of electric vehicles.”

If we aren’t given support, the French will overtake us. You won’t be buying a British built electric vehicle, you’ll be buying a French one,” he says


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And next for Britain, the semi-slump

July 15th, 2009 | No Comments

British economic history warns us to beware false dawns. Those calling for spending cuts have got it wrong – again

‘The duration of the slump may be much more prolonged than most people are expecting and … much will be changed both in our ideas and in our methods before we emerge. Not, of course the duration of the acute phase of the slump, but that of the long, dragging conditions of semi-slump, or at least sub-normal prosperity, which may be expected to succeed the acute phase.” John Maynard Keynes‘s lucid warning, delivered in 1930, might equally apply today.

It is instructive to look at the pattern of the great depression. The level of Britain’s gross domestic product in 1930 was not reached again until 1934. The annual unemployment rate of 1929, 8.2%, was lower than in every year during the 1930s, reaching a high of 17.6% in 1932. Today, we are probably out of the acute phase of the present recession, but the recovery is likely to be protracted.

Output for the first quarter of 2009 was revised down to -2.4%. That is the biggest drop since 1958, as the Office for National Statistics revised its initial estimate of 1.9%. In addition, the fourth quarter of the 2008 figure was revised down to a fall of 1.8% – as was the figure for the second quarter of last year, from zero to -0.1%, meaning the recession started in April 2008. Data from the Index of Production published this month also suggests little evidence of any recovery. Manufacturing output continues to decline and is at a 17-year low.

The 1980s recession began in the first quarter of 1980, and lasted for four quarters. The unemployment rate at that time was 5.8%; it did not return to that level for 20 years. From the third quarter of 1990 onwards, the economy recorded five successive quarters of negative growth. In the second quarter of 1990 unemployment was 6.9% and did not return to that rate for seven years.

And the current slump? Employment peaked in April 2008; since then Britain has lost 430,000 jobs. That unemployment has increased more than employment has fallen is of particular concern, because it shows that firms have stopped hiring, which particularly affects the young.

So, based on output, employment and unemployment, the recession started in the spring of 2008. We have already experienced four quarters of negative growth, with more to come.

Economists are uncertain about the likely path of recovery. For example, less than a year ago Britain’s National Institute of Economic and Social Research was predicting that the UK economy would “escape recession”, forecasting positive economic growth in both 2008 and 2009. On 10 June this year, the NIESR said, “The monthly profile points to March as having been the trough of the depression.” But on 7 July it had changed its mind again, arguing, “March can no longer be considered the trough of the recession.” A month is a long time in economics these days.

I continue to be struck by the similarities between the US and the UK. The American National Bureau of Economic Research called the start of the recession in the US when employment began falling in December 2007. Since that time US unemployment has increased by 7.17 million, whereas employment has fallen by only 6.46 million. The unemployment rate has risen from 4.9% to 9.4%.

The US is six quarters into recession. Despite a substantial fiscal stimulus and very accommodating monetary policy there is little sign that recovery is imminent. There have been several false dawns. The monthly decline in US payroll employment, for example, slowed in May but increased again to 467,000 in June. The Conference Board’s consumer confidence index, which had improved considerably in May, fell again in June. The job outlook section of the index was also more pessimistic. Those respondents anticipating more jobs in the months ahead decreased to 17.4% from 19.3%, while those anticipating fewer jobs increased to 27.3% from 25.6%.

The Bank of England’s timid monetary policy committee should not have sat on its hands last week; it should have expanded further its programme of quantitative easing. In the current circumstances, if we are to avoid the “dragging conditions of semi-slump”, public spending cuts make absolutely no sense. The government should be increasing spending now – and by a lot – not least because it can borrow at such a low long-run rate of interest. In such circumstances, infrastructure and education are smart investments for all our futures. Most of the self-proclaimed experts calling for public spending cuts missed the recession in the first place.

So I have a question for Gordon Brown, David Cameron and Nick Clegg. What plans do you have to get unemployment down any time soon? If you want to transform a recession into a depression, go ahead and cut public spending. I would advise against it and so, I believe, would John Maynard Keynes. Voters want jobs.

David Blanchflower is a professor of economics at Dartmouth College and a research associate at the NBER. He was a member of the Bank of England’s MPC from June 2006 to May 2009

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Rebalancing our shaky economy

July 15th, 2009 | No Comments

With unemployment rising and manufacturing declining, the economy needs more state help for a speedy recovery

Today’s unemployment figures show that, although banks’ share prices may be recovering, the labour market continues to deteriorate. Unemployment is set to continue to rise through the rest of the year and probably for the first half of next year too. The full human cost of the recession is still to be felt as the number of people out of work climbs towards 3 million.

The message coming out of the recession is clear: we need to build a broader-based economy, less reliant on consumer debt and more focused on investment and innovation. What is less clear is where the new jobs will come from. In the last economic cycle nearly three-quarters of all new jobs were created in the public sector, finance, construction and retail. Jobs will not be created in the same sectors in the next economic cycle. Other sectors will have to pick up the slack if we are to return to full employment.

While the need for the economy to rebalance is clear, the scale of the challenge that lies ahead is greater than people realise. After the last recession it took eight years to return to the previous level of peak employment – it could take even longer this time round. Employment in manufacturing – often presented as a potential source of jobs in the future recovery – has been falling at an annual rate of 3.7% over the last seven years, so just halting this decline would be a major change of trend.

The UK will therefore be reliant on a big turnaround in manufacturing and on services that aren’t in finance, retailing or the public sector for jobs growth in the next few years. The challenge of creating these jobs and achieving more balanced employment may be large, but it is not insurmountable. The UK has strengths on which to build – high-tech manufacturing, pharmaceuticals, services for export, business services, publishing, media and creative industries, for example. It could also stand to gain from increasing demand for green technologies as a result of attempts to address climate change and for care services as a result of our ageing population. The weaker pound, growing markets in emerging economies and concerted economic stimulus at home and abroad will all help.

But a rebalanced economy will not develop by chance. Some strategic government support for industry is also needed. As the financial crisis unfolded, Lord Mandelson trumpeted an “activist” approach to industry in an attempt to create an economy “with less financial engineering and more real engineering”. This was a move in the right direction but has not gone far enough.

We believe there is a more structural role for the state to correct market failures. The role government should play in the economy doesn’t stop when the recession is over. That is why we are calling for the government to match its rhetoric with the creation of institutions and policies that will “fix” an activist approach into the wider economy – including the creation of an infrastructure bank, government-backed university-business links, a national ideas bank and greater control for city-regions over their local economies.

A debate is beginning about how the UK economy will grow and what role the government should play in the process. The government should seize the opportunity to put in place the institutions and policies required to build a more sustainable employment base and ensure a speedy recovery to full employment. There are reasons to be optimistic and tell a positive story about the possibilities for growth and job creation in the UK – but that optimism depends on a supportive, strategic government.

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G8 leaders fear double dip slump

July 8th, 2009 | No Comments

Leaders agree five-point plan to boost growth amid concern that global economy needs help to avoid further recession

The leaders of the west’s most powerful countries expressed fears tonight of a double-dip recession and stressed the continued need for emergency measures to boost growth until recovery from the worst post-war global recession was assured.

Gordon Brown said the G8 summit had agreed a five-point programme to boost economies and create jobs. “There are warning signals we cannot afford to ignore,” the prime minister said.

A G8 communique released after an opening round of talks at the three-day summit saw some signs of stabilisation following the slump in output last winter, but stressed the world economy still faced “significant risks” and might require help to avoid a double-dip downturn. Leaders stressed that pro-growth policies should be abandoned only once it was certain the recession was over.

“The G8 needed a second wake-up call,” Brown said. “I think it is being heard loud and clear.” He added that the talks had concentrated on avoiding protectionism, increasing bank lending, boosting foreign direct investment to poor countries, measures to combat unemployment, and rising energy prices.

Although the International Monetary Fund said yesterday that the worst of the recession was over, it endorsed the G8′s downbeat view by predicting that recovery in rich, developed countries would be delayed until the second half of 2010.

Among the measures discussed in L’Aquila yesterday was a target range for oil prices that would be agreed between producing and consuming countries. The prime minister said no specific figures had been discussed, but that recent gyrations in oil prices posed a threat to growth. Fears over the health of the global economy, fanned by both the IMF and the G8, yesterday pushed oil prices below $61 a barrel.

The G8 asked the World Trade Organisation to produce three-monthly reports on countries introducing protectionist measures in response to the recession. It is pressing for the Doha round of trade liberalisation talks, which have been under way since 2001, to finish next year.

Despite calls from the German chancellor, Angela Merkel, for countries to beware the inflationary risks of keeping loose policies in place for too long, the G8 made it clear that it was too soon for policies to be tightened. With data suggesting a spring rally in growth was ebbing, the G8 said the “situation remains uncertain and significant risks remain to economic and financial stability”.

The G8 said it had taken “unprecedented” measures – including ultra-low interest rates, extra borrowing and the printing of electronic money – to tackle the “most severe economic and financial disturbances in decades”. Both Brown and Barack Obama stressed that countries should focus on restoring growth before they implemented “exit” strategies from their emergency packages.

Germany is worried about countries running up crippling debt during the recession and has pressed for spending restraint. Other countries, including Britain, the United States and Japan have left open the possibility of pumping more money into their economies through the process known as quantitative easing.

Obama signed an $787bn economic stimulus bill in February, but experts say only about 15% has made its way into the economy so far, creating a debate between the wait-and-see camp and economists who urge another stimulus, arguing the recession proved to be deeper and more devastating than originally believed.

Brown said all G8 countries were committed to bringing deficits back under control once growth had resumed and would use IMF assessments of global economic conditions to draw up exit strategies.

“We will take, individually and collectively, the necessary steps to return the global economy to a strong, stable and sustainable growth path,” the communique said.

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Economy dominates G8 meeting

July 8th, 2009 | No Comments

Gordon Brown urges fellow world leaders to avoid complacency about prospects for growth, jobs and investment amid recent downbeat data

Growing fears that the global economy could sink back into recession after a brief rally dominated the agenda as the leaders of the G8 nations gathered in Italy for their annual summit today.

Gordon Brown arrived in L’Aquila, in the region devastated by an earthquake in April, urging fellow world leaders to avoid complacency about the prospects for growth, jobs and investment.

The prime minister’s comments came amid recent downbeat data which has dampened hopes of rapid recovery.

The G8 leaders were due to discuss Barack Obama’s plan for a crackdown on oil speculators amid concerns that the recent increase in crude prices threatened a double-dip recession.

After falling from a peak of $147 (£91) a year ago to a trough of $35 at the turn of the year, oil prices last month rose above $70 a barrel.

Although no new package of tax and spending measures will emerge from the three days of talks, the leaders hope to reach agreement on measures to cap energy prices and combat rising protectionist pressures.

Brown, who took centre stage at the G20 summit in London, was planning to warn fellow leaders that they needed to focus on the current state of the global economy rather than plan ahead for 2011 or 2012.

Britain wants the meeting to address five key issues hindering recovery from the most serious global downturn since the 1930s – a credit famine, rising unemployment, protectionism, a lack of investment and oil prices.

Growth in the west’s leading industrial nations has collapsed since the banking crisis last autumn, with output dropping at an annual rate of 4.9% in the UK, 8.4% in Japan, 6.9% in Germany and 2.5% in the US.

The G8 will draw comfort from the stabilisation of financial markets since the panic of late 2008 and signs that the $1.1 trillion package agreed at the G20 has prevented a threatened meltdown in eastern Europe.

But the G8 nations remain concerned that rising unemployment, expected to peak at a record 40 million people in developed countries next year, coupled with falling house prices will choke off consumer spending in the months ahead.

Brown’s hopes of a major breakthrough on climate change were dealt a blow when the Chinese president, Hu Jintao, was forced to fly home to deal with ethnic riots.

Brown is hoping the summit will make progress on the agenda for December’s Copenhagen summit, which will seek to set a long and medium-term target for limiting global CO2 emissions and a package of financial aid to help developing countries adapt.

Obama’s willingness to sign up to a long-term target has improved the atmosphere for the climate change negotiations, but Brown believes a substantive deal in Copenhagen will be difficult to achieve without progress this week .

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Labour’s last chance on 10p tax

July 7th, 2009 | No Comments

The government has failed to recompense the core supporters who lost out in the 10p tax fiasco. We must put this right now

I was stung by John Humphrys’ observation on the Today programme that those Labour members attempting to get justice for lower-paid workers who lost out with the abolition of the 10p starting rate of tax were rebels. In one sense we are, but not in the more profound sense.

The rebels are surely Gordon Brown and his then cohorts at the Treasury who overturned the most basic of Labour’s commitment to the poor. The abolition of the 10p starting rate of tax raised most of the revenue to fund a 2p cut in the standard rate of tax.

Instead of Labour moving to ease the burden on those earning the smallest wage packets, it increased it to lessen the tax burden on the rest of the community. It is this injustice that Labour members will be trying to finally overturn in today’s budget debate.

At the weekend, the Labour whips repeated to the press that they were very relaxed and confident about seeing off the amendment. If they were so relaxed, then Labour members could safely vote with their consciences.

The whips’ campaign changed direction yesterday, claiming that the amendment was out to wreck the budget, and that if it was passed the government would not have the power this evening to continue levying taxes.

Rubbish. The government is raising revenue, as all previous governments have done, under a measure that allows its tax-raising powers to go on while a budget is being debated in parliament.

These time-limited powers run out on 5 August. So there will be plenty of time before that deadline arrives for the government to bring forward a full compensation package for the 10p losers, have the package implemented and gain tax-raising powers for the rest of the year.

The other line the whips are peddling is that hardly anyone gets letters about this issue nowadays, so the 10p injustice has subsided in the country. It is true there are fewer emails and letters, but can we be so sure that lower-paid workers have forgotten about the issue – or have they simply given up any hope of influencing Labour MPs to deal the justice card dealt to them?

I still get a small but steady stream of letters and emails on this topic. The sense of hurt and anger at the government has not subsided, if these communications are anything to go on.

The abolition of the 10p rate sent shockwaves through Labour’s core vote. We will only know its longer-term damage when the ballot boxes are opened at the end of the general election. My guess is that it will count against us in a significant way.

The politics of today’s amendment is about abating that anger. For the government, even at this late stage, to make a determined effort to make sure no 10p taxpayer is still a loser might just bring closure to the issue when people come to vote.

The number of 10p losers, on the most conservative of estimates, was well over half of Labour’s vote at the last election. I find it incomprehensible that a government whose strategy is now to shore up the core vote is still intent on defeating the 10p motion tabled by a significant number of Labour MPs.

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Slump in UK car sales eases off

July 6th, 2009 | No Comments

• Year-on-year fall shrinks to 16% from 28%
• Car scrappage scheme led to 23,000 extra sales in June, SMMT estimates

The slump in UK car sales eased off last month as the government’s car scrappage scheme lured customers back into showrooms, according to new data that gives hope to the beleaguered car industry.

Figures released by the Society of Motor Manufacturers and Traders (SMMT) showed 176,264 vehicles were sold in June, up from 134,858 in May.

This is 15.7% less than a year ago but is the smallest year-on-year fall since July 2008 and a marked improvement on the 28% year-on-year decline seen in the first five months of this year.

June is the first full month in which the government’s “cash for bangers” scheme has been operating, which encouraged people to buy new cars by giving a £2,000 payment for their old vehicle. The SMMT believes the scheme has resulted in about 23,000 extra sales in June.

“We are now beginning to see the positive impact of the scrappage scheme translate into new vehicle registrations,” said Paul Everitt, the SMMT chief executive. “We can already see the industry making steady progress on the long road to recovery.”

Last month, it was reported that 60,000 orders have been placed under the scheme, suggesting it could boost car sales over the next few months.

Darren Winder, head of macro and strategy research at Cazenove, said that today’s figures showed the outlook for new car sales was brighter than at the start of 2009.

“With over 9m vehicles estimated to be more than 10 years old, the scrappage scheme is likely to continue to support new car sales in the second half of 2009,” Winder said.

But Howard Archer, economist at IHS Global Insight, warned that the UK economy might only get a limited boost from the £300m scheme, which runs until February 2010.

“There is a significant danger that increased spending by consumers on vehicles will come at the expense of spending on other big ticket items,” he said.

“The benefit to the UK economy will also depend significantly to what degree the new cars purchased under the scheme are manufactured in the UK.”

The SMMT’s figures showed that registrations to private buyers rose for the first time since November 2007 in June, up by 3.9%. Small cars have enjoyed the biggest rise in demand, with the mini segment of the market growing by 145% compared with a year ago. The Ford Fiesta was the most popular model, with 9,822 sold, followed by sister car the Focus with 9,286, and Vauxhall’s Corsa with 7,893 sales.

Sales of some larger cars fell sharply in June, though. The number of Bentleys registered dropped to 85, from 142 a year ago, while only a single Hummer was registered, compared with 42 in June 2008.

“There are some great deals out there for consumers to take advantage of and the good news is that they are buying smaller and more fuel-efficient cars, which can only be good news for the environment,” said RAC motoring strategist Adrian Tink.

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Darling to clamp down on bonuses

July 5th, 2009 | No Comments

High-paying City banks forced to hold more capital

City banks that pay out lavish bonuses for short-term profits will be forced to set aside a bigger cash cushion against losses, Alistair Darling will announce this week, as he sets out the government’s plans to crack down on the practices that led to the credit crunch.

With the darkest days of the financial crisis apparently over, bankers in the Square Mile have quietly begun to use the phrase “BAB”, or “bonuses are back,” to signal their hope that the era of outsize pay packets is returning. US bank Goldman Sachs is expected to pay out the biggest bonuses in its history this year, on the back of bumper profits.

But government ministers have stepped up their rhetoric against the City’s bonus culture in recent days, with Lord Myners railing against “weak and lazy” remuneration committees that wave through generous payouts.

As part of measures to re-regulate the banking sector, due to be announced on Wednesday, the chancellor will tell the Financial Services Authority that it must treat banks that pay out large cash bonuses on the basis of short-term targets as riskier than their rivals, and force them to hold more capital.

The FSA has already announced a code of practice for remuneration in financial firms, but Treasury sources said the regulator will be urged to give the new rules teeth, by cracking down on firms that fail to comply. The chancellor would also like to see more use of “clawback” clauses, which allow banks to call in bonuses if a trader’s bets turn sour.

Darling is keen to strike a tough pose on bankers’ pay, after it was revealed that the boss of part-nationalised RBS, Stephen Hester, could take home up to £15m if he meets share-price targets. Hester agreed to defer part of the payout for another two years, to 2014, after the deal sparked public outrage.

Vince Cable, the Liberal Democrat Treasury spokesman, said that insisting bonuses are paid in shares instead of cash was not enough. “Traders are doing that anyway, because the shares are cheap, and capital gains tax is only 18%,” he said.

The chancellor’s plans for cleaning up the City have already sparked a turf war between the government and the Bank of England, with governor Mervyn King complaining last month that, without more powers to intervene in risky financial institutions, “the Bank finds itself in a position like that of a church whose congregation attends weddings and burials but ignores the sermons in between”.

Instead of handing King more control, however, the chancellor will suggest beefing up the Bank’s quarterly Financial Stability Review, which identified some of the weaknesses in the banking sector before the credit crunch.

Whitehall officials have been discussing whether the Bank should in future publish recommendations alongside its analysis, and the FSA and the Treasury then be forced to adopt them or explain why they have decided not to.

This week’s white paper is expected to reject some of the most radical proposals for preventing a future banking crisis, such as splitting large international banks into riskier “casino” arms and standard high street lenders, with only the latter carrying a state guarantee.

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Mandelson shelves Royal Mail privatisation

July 2nd, 2009 | No Comments

• Business secretary blames poor market conditions
• Trouble looms over £10bn pension deficit

The government today abandoned its controversial bill to part-privatise the Royal Mail before the general election, the day after it dropped plans for compulsory ID cards.

Lord Mandelson blamed the lack of credible bidders for the proposed 30% stake on the depressed market. He had found only one plausible candidate and was unlikely to secure a decent price of about £2bn. The sale might also have fallen foul of EU competition laws.

A Mandelson aide said that trying to force the legislation through the Commons would “be time-consuming and would completely dominate the government’s political agenda over the summer when we knew we would be unable to implement it in the immediate future”.

It is a severe blow to a government that had repeatedly said part-privatisation was essential to modernise a declining business under severe technological threat. Only on Monday Mandelson had accused David Cameron of going soft on public sector reform, a charge that was thrown back in his face last night by the shadow cabinet.

Mandelson told the prime minister of his decision yesterday and informed the chancellor, Alistair Darling, this morning before making a formal announcement in the Lords in the afternoon. He told peers: “Market conditions have made it impossible to conclude the process to identify a partner for the Royal Mail on terms that we can be confident would secure value for the taxpayer.

“There is therefore no prospect in current circumstances of achieving the objectives of the postal services bill. When market conditions change we will return to the issue.”

Last month Mandelson admitted he was struggling to secure a decent price for Royal Mail, but suggested he would press ahead with the bill, even if no satisfactory bidder was immediately available.

Now that option has also been dropped, leaving the government to hope it can revisit the issue if re-elected.

The bill had already been through the Lords and had been waiting for its second reading in the Commons. Mandelson had made strenuous efforts to win over backbenchers and strike a deal with the Communication Workers’ Union. There is no prospect of fresh legislation being introduced into the Commons in the final parliamentary session starting in November.

As part of the deal, the government had been planning to take on the £10bn pension fund deficit, as well as to change regulation.

But now Mandelson has put himself on a collision course with Royal Mail, its pension trustees and unions by refusing to bail out the postal company’s estimated pension deficit.

The trustees are expected to revise their estimate of the shortfall from the current figure of £3.3bn to at least £10bn in the next few weeks. This would require Royal Mail to more than double its annual payments to plug the deficit, which would bankrupt the company.

Royal Mail has until next June year to agree with its pension trustees how to protect the fund and its 450,000 members. Jane Newell, chair of the Royal Mail’s pension fund, warned Mandelson earlier this year of the “very severe consequences” for the pension scheme and Royal Mail if privatisation did not take place.

She met officials from the Department for Business yesterday to urge them to plug the deficit.

Yesterday, the CWU also stepped up the pressure on Royal Mail and the government when it announced that postal workers would stage three days of rolling strike action in London.

The union claims Royal Mail has reneged on their agreement on how to modernise the business, accusing it of making arbitrary cuts.

Royal Mail said in a statement that the need to resolve the three key issues facing the business had not gone away: “The need for fairer regulation, the need for a resolution to the large and growing legacy pension deficit and flexible and timely access to capital remain as urgent as before.”

The shadow foreign secretary, William Hague, said: “This is the government of the living dead. They are in a state of chaotic inertia.

“Even Peter Mandelson is no longer in control of the Labour party, let alone Gordon Brown or the rest of the cabinet.”

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Mandelson accuses Osborne of lying

July 1st, 2009 | No Comments

Business secretary challenges shadow chancellor to withdraw comment suggesting Gordon Brown refused the Tories permission to see a government database

Lord Mandelson today accused George Osborne of lying after the shadow chancellor claimed that he was refused permission to see government spending figures by Gordon Brown.

The business secretary challenged Osborne to withdraw a comment he made in a BBC interview which Mandelson described as a “deliberate untruth”.

Mandelson said that if Osborne did not withdraw it, Brown would raise the matter at prime minister’s questions today. A spokesman for Osborne did not have an immediate response when told about the statement, which Mandelson issued this morning.

Over the last few weeks Brown has been strongly criticised, by the Tories and by some independent commentators, for issuing misleading statements about the future of public spending. Brown has been depicting Labour as a party committed to spending increases, although in practical terms departmental spending is forecast to go down after the general election.

But today Mandelson went on the offensive, throwing the accusation of dishonesty at the Tories.

Last night, in an interview with the BBC, Osborne said the government had told the Tories that they would not be allowed to see a government database known as the combined online information system, providing information about Whitehall spending in 12,000 categories.

“Gordon Brown is denying to the opposition the information on spending items in the government budget which would help us plan for government, help us plan for dealing with the debt crisis,” he said.

But, according to the BBC, the decision to refuse the Tory request, which was made in February, was taken by Sir Gus O’Donnell, the cabinet secretary, not Brown.

Today Mandelson accused the shadow chancellor of smearing the prime minister.

“There is a very unattractive pattern of behaviour that is starting to emerge with George Osborne, of innuendo in pursuit of a smear,” said Mandelson.

“Yesterday George Osborne issued a very serious allegation that the prime minister had intervened to deny the opposition of information they were entitled to. This claim has been flatly denied by the cabinet secretary. I suggest George Osborne withdraws this deliberate untruth to avoid embarrassing his leader at prime minister’s questions today.”

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Economy shrinking at 50-year record

June 30th, 2009 | No Comments

Downward revisions to official statistics show output fell 2.4% in the first three months of the year and the recession started three months earlier than thought

The recession facing Britain is even deeper than had been thought and started more than a year ago, it was revealed today

National income fell in the first quarter of this year by 2.4%, the biggest drop since 1958, as the Office for National Statistics revised its initial estimate of 1.9%.

The figures are much worse than expected. Extended to the whole year, the drop in output in the January to March period is now equal to 4.9% – the worst since records began in 1948.

“We hope the recovery comes as soon as possible but sadly we now know this recession has been longer and deeper than we had thought,” said shadow chancellor George Osborne.

“This also means that in the future unemployment will be higher and Labour’s debt crisis will be even worse.”

Although GDP fell 2.4% in the third quarter of 1979 and first quarter of 1974, statisticians said these were rounded from 2.36% or 2.37%. The figure for this year was exactly 2.4%.

The revision is one of the biggest ever made by the ONS and it said the reasons were changes to its estimate of the construction and services sectors.

The ONS also revised down its figure for the second quarter of last year to -0.1% from zero, meaning the recession started earlier than previously thought. And the fourth quarter of 2008 figure was revised down to a fall of 1.8%.

“The recession, which now begins in the second quarter of 2008 rather than the third, is now thought to be quite a bit deeper than previously thought, and is looking ominously like the early 1980s vintage,” said Danny Gabay of Fathom Consulting.

Critics of the Bank of England who called for big interest rate cuts in the first half of last year, will feel justified by the data, since the Bank’s monetary policy committee argued into last autumn that there was little likelihood of a recession occurring and delayed rate cuts until October. In fact, the economy had entered one last spring.

Separately, the Trades Union Congress said that while there were signs of “green shoots” in the economy, this was more to do with an easing of the pace of the fall in output rather than that a big recovery was under way.

“This recession is already worse than the 1990s one and is likely to be worse than that of the 1980s,” said Richard Excel, TUC labour market expert. “It has been very severe and we are probably only half way through. It will be quite some time until employment and growth return to pre-recession levels.”

Paul Gregg, labour market expert from Bristol University, noted that unemployment had started rising earlier in this recession than in previous ones and was “encouraged” that monthly rises in the claimant count appeared to be slowing down.

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Public want NHS protected from funding cuts

June 29th, 2009 | No Comments

Sacrifice other departments instead of the NHS, say three out of four people in British Medical Association poll

More than three-quarters of the public – 77% – believe NHS funding should be protected in the face of future spending cuts, an opinion poll has found.

Other departments’ budgets should be sacrificed in order to preserve the health service, the British Medical Association survey heard. Four out of 10 people said they would be willing to pay higher taxes to sustain growth in NHS funding.

The poll questioned 1,071 people in five UK cities – London, Edinburgh, Belfast, Manchester and Cardiff – a week ago, and reflects fears that severe cutbacks are looming.

Nine out of 10 people suspect NHS services will be cut as a result of the recession, and almost as many believe waiting times for treatment will rise; 85% anticipate additional charges for NHS treatments.

The level of public support for the NHS at the expense of other departments is likely to be welcomed by the Conservative health spokesman, Andrew Lansley, who last month stirred controversy when he declared that a future Tory administration would protect the health service and target cuts elsewhere.

The poll, released on the eve of the BMA’s annual conference in Liverpool, gave conflicting evidence about privatisation. Nearly 60% said the private sector should be more involved in providing NHS services but almost half (47%) said there should be no further contracts for commercial companies.

The BMA chairman, Dr Hamish Meldrum, said: “These results show how anxious the public is about the effects of the recession on the health service, with a significant number saying taxes should increase to protect NHS funding. No one wants to see any cuts in the public sector but our poll reveals just how much society values their health service.

“Fear often goes hand in hand with economic slumps, with people worrying what will happen to them and their families in times of ill health. While we appreciate that the government needs to steer the country through this difficult economic period, we urge it not to do so at the expense of NHS funding.”

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No new spending plan before election

June 29th, 2009 | No Comments

Business secretary’s statement follows Tory claims that Labour is trying to hide future cuts from voters

The government will not set out a fresh set of public spending plans before the next general election, Lord Mandelson confirmed today, as Gordon Brown prepares to launch the government’s programme for the year ahead.

The business secretary said future spending would depend on economic recovery but there would be a “reprioritising of expenditure both within and between departments”.

But pressed on whether it was correct that the government would not be setting out new spending plans before the election, Mandelson replied: “I believe that the chancellor has made that judgment, yes.”

The question, put to him on BBC Radio 4′s Today programme, follows Tory claims that Labour was trying to hide future cuts from voters.

“The spending period currently operating in government stretches beyond the next election and therefore it is reasonable to review public spending at that time,” Mandelson said.

A boost in social and affordable housing would be part-funded by money switched from the Home Office and Department for Transport budgets, he said.

Mandelson said it was impossible to predict how the economy would perform over the next two years.

“We are not in a position, in June 2009, to be able to forecast what growth will be and what the performance of the economy will be in 2011. That is why we have to wait.”

Any spending review now “would be based on entirely speculative projections of what economic growth will be”, he suggested.

“Therefore, what we have decided to do is to link our spending plans to reality rather than to speculation.”

Asked how the government could afford its new pledges, Mandelson said: “We have to live within our means as a government, and being fiscally responsible is an important principle of New Labour.

“So the new policies that are being unveiled today by the prime minister reflect a reprioritising of expenditure both within and between departments.

“To give you one example: he will be announcing a major boost in the provision of social and affordable housing over the next two years. That reflects a switch in spending both within the relevant department but also between the Home Office and the Department for Transport to the other department.

“So there are things that can and should be done and, although future spending will be conditioned … by the need to rebalance public finances, to pay down borrowing, our ambition to sustain higher levels of spending will be linked to the performance of the economy on growth and our ability to generate employment.

“And the prime minister will be explaining how we believe we can generate both growth and employment in order to pay for the public spending and investment we want to sustain.”

Asked if the government planned to trim spending in real terms, he said: “The spending review that will take place after the next election when the current review period has ended will take account of the state of the economy at the time.”

He accused the opposition of being committed to cut “come what may” to pay for tax cuts for the rich.

And he said the Tories were selling their soul to the private sector.

“The Tories, in my view, have entered into a sort of Faustian pact with producer interests in the public services; they are saying they will spend less on public services and they are also saying they will require less of them.”

The business secretary made the comments ahead of the prime minister’s unveiling of what is expected to be a series of policy shifts designed to give people more power over public services.

Among the most radical moves being put forward by the prime minister will be giving patients cash to go private if NHS Trusts cannot meet the 18-week target between GP referral and treatment.

Cancer sufferers would be able to take their funding elsewhere if they are not given a specialist appointment within two weeks.

Similar “entitlements” are being considered for accessing an NHS dentist, late opening hours for GPs at weekends, and getting palliative care at home.

The amount of money would be equivalent to the cost of the treatment on the NHS, and trusts that fail to meet their obligations could also face other financial penalties.

The changes are likely to be portrayed as a climbdown by Brown, who battled against less drastic Blairite efforts to involve the private sector in public services.

There are similarities to the “patient’s passport” policy dropped by the Tories after the last general election. Currently, only elective surgery such as hip replacements and cataract surgery is provided through private treatment.

However, after a series of dire poll results and leadership speculation, aides hope that a new policy platform can counter criticism that the government is “drifting” and get Brown back on track.

The prime minister will attend a series of events today to launch the Building Britain’s Future document.

Other pledges are expected to include freeing up local authorities on housing allocation so priority can be given to people with ties to the community. The BNP exploited anger over the perception that immigrants are pushed to the top of housing lists during recent local and euro elections.

There will also be a “significant” expansion of funding for social housing, and the scrapping of “top-down” targets across services, according to government sources.

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