"Rearranging the deckchairs on the Titanic"

Alistair Darling announced his budget in parliament today [Wednesday] but it has drawn a poor reception from opposition parties and commentators. One e-mailer to Sky News described it as merely “rearranging the deckchairs on the Titanic”.

It is a recession that has brought the worst debts in over 50 years and unemployment rates that continue to rise to record levels.

Opposition leader David Cameron said that the government had brought decades of debt. “The last Labour government left the dead unburied, this Labour government leaves the debts unpaid,” he said.

“What is the point of another 14 months of a government of the Living Dead,” he lambasted.

Similar views were expressed by other members of parliament with Liberal Democratic Party leader Nick Clegg accusing the government of being “out of ideas and running out of steam”.

Cigarettes & Alcohol

Many pub goers will be steaming after Darling’s announcement to increase the tax on alcohol by 2%. The decision has angered the British Beer & Publicans’ Association [BBPA] and the Campaign for Real Ale which has lobbied hard to ease pressure on Britain’s pubs, which are now closing at a rate of 39 per week.

There is little solace for smokers who will see cigarettes rise by 2%. And motorists will be fuming after the Chancellor announced petrol would rise by two pence per litre in September and a further penny per litre every April for the next few years.

Tax on beer will hit every drinker in every pub and taxes on fuel will hit every motorist driving to work, Cameron said.

The BBPA said, “Today’s Budget signs the death warrant for thousands of Britain’s pubs and for tens of thousands of British jobs.”

Meanwhile motoring organisations have criticised the fuel tax rises. RAC motoring strategist Adrian Tink said, "Today's announcement is another brutal blow for motorists who have already witnessed a decade of non-stop increases and price rises.”

“It's time for the Government to stop treating motorists' pockets as a bottomless pit of money and recognise their right to drive at a fair, affordable price,” he added.
Car scrappage

There was scepticism over the government’s car scappage scheme which is aimed at reducing the amount of the more polluting cars on Britain’s roads. It is also hoped the scheme will help boost the car industry. From next month, until March 2010, motorists will be offered a £2,000 discount on new cars if they trade in cars older than 10 years. But the cars to be scrapped must have passed an MoT and there has been criticism that the scheme is too bureaucratic.

While the government is putting £1,000 into the scheme it is looking to manufacturers for a matching contribution. It has prompted some to say the scheme may prove to be uneconomic, given that the motor industry will also have to pay for the disposal of the old vehicles.

But Paul Everitt, chief executive of the Society of Motor Manufacturers and Traders was broadly optimistic about the government plan.

“This is good news for consumers and will get people back into showrooms, kick-starting demand in the market,” Everitt said.

“The scheme recognises the economic value of the motor industry and we are determined to make it a success. There is clearly a great deal to do and we look forward to discussing the finer detail of the proposal with government in the coming days.”

Tax

The Chancellor announced he would raise income tax for those earning more than £150,000 per year to 50% as from April 2010. But while this may bring in vast sums of money, some believed it may scare some high earners out of the country.

Economy

It was the state of the economy which drew most interest. Chancellor Alistair Darling forecast the economy would shrink 3.5% in 2009, 2.5% worse than expected. He said growth was not expected to start until at least 2010 when it would be at 1.25% and 3.5% from 2011.

The figures have already been described as “fantasy” by acting leader of the Liberal Democratic Party, Vince Cable. He said the predictions were “Wildly optimistic and completely unreal.”

Even the International Monetary Fund predicts the British economy is likely to see a 4.1% contraction this year and projects further shrinkage next year.

The Confederation of British Industry (CBI) also said the figures “look optimistic” and warned against such long term predictions. Richard Lambert, the CBI Director-General, said “By pushing out the horizon for balancing the books as far as 2018 the Government is running too much of a risk.”

There were gasps of astonishment when Darling stated public borrowing was set to reach £175 billion by the end of 2009, amounting to 12% of GDP. The total debt would grow over the coming years he said, though the amounts borrowed would fall year on year. He announced borrowings of £173 billion in 2010, £140 billion in 2011, £118 billion in 2012 and £97 billion by 2013. This amounts to a total of £703 billion.

The City was shocked by the mounting debt. City commentator David Buik said many were “blown away by the gargantuan size of the national debt”.

Opposition leader David Cameron accused the government of “Running out of money, running out of moral authority and running out of time.”

But one leading trade union has supported the government’s efforts in tackling the economic crisis head on. Unite's joint general secretary, Derek Simpson said, “Alistair Darling had to deliver the toughest budget in decades but he has positioned Labour as the party for jobs and social justice while exposing the Tories for being the party of cuts and inequality.”

Jobs

In an effort to tackle the rising unemployment, the Chancellor said the government would offer support to the long-term unemployed under 25s who would be offered a job or training. He announced that an additional £1.7 billion would be made available to the Job Centre network.

Housing

Alistair Darling announced a scheme to guarantee mortgage backed securities to boost lending. Stamp duty holiday for homes would rise to £175,000 and be extended to end of year. In addition he said an extra £80 million would be made available for shared equity mortgage schemes.

But opposition leader David Cameron was not impressed by the chancellor’s proposals. “Home buy direct has not made a single sale through the exisiting scheme,” Cameron said.

Savings and benefits

There were announcements to identify and close tax loopholes which he said could raise more than £1 billion. And he proposed a cut in public spending from 1.1% to 0.7% in 2011-2012. In a move to encourage saving Annual limits for tax-free ISAs would rise to more than £10,000 for over-50s this year and for everyone else next year, the chancellor said.

Environment

In a bid to cut Britain’s CO2 levels by 34% by 2020, Darling said an extra £1 billion would be spent to support low-carbon industries. Around £500 million would be made available for offshore wind projects over the next two years and £435 million would be spent in support of energy efficiency schemes for homes, firms and public buildings.
But Friends of the Earth's Executive Director Andy Atkins said the government had not done enough. "The Government has squandered a historic opportunity to kick-start a green industrial revolution, create tens of thousands of jobs and slash UK carbon dioxide emissions,” Atkins said

The budget is rarely good news, but this year painted an extremely grim picture. Britain is likely to be in debt to the tune of more than £700 billion within 5 years. Unemployment sees no sign of falling and many expect the number to rise to more than 3 million by the end of 2009.

The opposition parties have made great capital in tearing Labour’s proposals to pieces and called for a change in government. The Conservatives may well win the next election set for 2010, but they will inherit a country in the worst financial situation in living memory. It is an unenviable position they will find themselves [BBC / Sky News].

TV News gears up for historic budget

With a little under half an hour to go until Alistair Darling delivers his budget, TV news channels and news organisations have pulled out all the technological stops to deliver a barrage of information. Sky are deploying political bloggers to issue reports as Darling delivers his speech. The channel is also making use of Twitter as it puts out constant updates. Skype, the internet telephony service, text and email is being used to get views from the public around the UK, to provide what it hopes to be a rich flow of information. The BBC have followed a more traditional path with political commentators providing comment in the studio as well as bringing live broadcasts from the City and around the country. Meanwhile Sky News are not only rooted outside parliament but also flying above bringing aerial pictures from the Skycopter. Even No 10 is a Twitter with its feed and providing online coverage. It may all prove to be information overload for some. But most will nonetheless be listening carefully to see what the Chancellor says.

Eyes on China as Clinton arrives

US Secretary of State arrives in Beijing on Friday evening

US Secretary of State Hillary Clinton has said that both China and the United States need to “work together” during the current economic downturn. Speaking to CNN prior to her arrival in Beijing she showed optimism that the two countries could overcome previous difficulties. There have been a rise in tensions between the two superpowers over product safety and on issues such as human rights over the past year. However, Michael Santoro, author of China 2020, told CNN’s Kristie Lu Stout on Asia Today, that a new model needs to be fleshed out for the partnership to work.

China has suffered too from the economic crisis. Millions of migrant workers, once employed in factories across the country, have been made jobless. To get the country back on track China recently announced a $600 billion economic stimulus package and there are plans to boost its steel and auto industries, including about $1.5 billion to develop alternative-fuel vehicles. But with concerns of product safety, China has to address these problems as it moves into other areas of manufacturing. "It's no longer sufficient for China to become a manufacturer of sneakers or toys and the like," Santoro told CNN]. "Now they're looking to become players in the area of pharmaceuticals and foods and other high value-added products, where safety and quality are important characteristics for improving in the global economy."

While China’s economy has passed Germany and closed ranks with Japan, it has not been immune to the effects of the recession. The Chinese government has revised its growth figures for 2007 from 11.9 percent to 13 percent, bringing its estimated gross domestic product to $3.4 trillion, around 3% larger than Germany's $3.3 trillion for the same year, based on World Bank estimates. Beijing is expected to release its 2008 GDP figures next week [BBC / CNN / Xinhua].

Hillary Clinton arrives in a country still wary about Western attitudes towards it. President Barack Obama’s inauguration speech rattled some nerves in Beijing after he mentioned the word “communism”. During his address, Obama said, "Recall that earlier generations faced down fascism and communism not just with missiles and tanks, but with sturdy alliances and enduring convictions." China Central Television aired the speech live with a simultaneous Chinese translation, but when the translator got to the part where President Obama talked about facing down communism, her voice suddenly faded away. The programme suddenly cut back to the studio, where an off-guard presenter had to quickly ask a guest a question. Versions of Obama’s speech have also been cut on news websites, though English language versions remain intact [BBC].

English output from Chinese news services often differs from Chinese language versions. On CCTV’s China Today, human rights and the environment were mentioned as subjects the US Secretary of State was set to discuss with Chinese leaders. Professor Chu Shulong of Tsinghua University described the meeting as a positive move. But it will be a tight schedule on the last day of her Asian tour. She is set to meet with President Hu Jintao, Premier Wen Jiabao and Chinese Foreign Minister Yang Jiechi.

Clinton’s visits to Japan, Indonesia and the Republic of Korea (ROK) have made few headlines other than concerns over North Korea. However, many will be watching closely as she visits this growing economy which become so inextricably linked to so many others.

Anger rises as unemployment soars

Flashback to the 1980s when unemployment was around 3 million

Anger and resentment in Britain is growing as the recession deepens. While there is of course concern amongst the unemployed as to how they are going to pay their bills or find another job, there is increasing anger directed towards the government and more recently top bankers. The rhetoric coming daily from the politicians is not solving the economic problems that Britain faces. And many see government actions as only helping the banks and financial institutions instead of the ever increasing numbers of unemployed and others struggling to pay their bills and mortgages.

Banks have been a particular target as many seem to be failing in their responsibility of passing on interest rate cuts to customers. In addition, most of the financial institutions have become unwilling to lend despite the government bail-outs amounting to billions of pounds. In the last week there has been an explosion of criticism mounted against the main high street banks. From individuals to high profile celebrity chefs, there have been complaints that the banks are just plain refusing to increase overdrafts or make loans available. Antony Worrall Thompson a well known celebrity chef said he had been forced to close four of his restaurants after Lloyds bank deemed him a credit risk. He said he was furious that the bank had refused to extend his overdraft by the £200,000 needed to keep the business afloat. The closures have added a further 60 people to the unemployment lines.

This week the Labour government released new figures showing unemployment had reached a 12 year high of more than 1.97 million [BBC]. The figure does not take into account those who have lost their jobs since the end of December and excludes many jobless who are unable to apply for benefits. The Office for National Statistics has reported that nearly 3,000 people are being made redundant every day and much of the UK press have drawn parallels to the 1980’s Conservative party election campaign when a famous poster showed a long queue of unemployed under the banner ‘Labour isn’t Working’.

While the long list of unemployed queue for their benefits and search for new jobs, it is the bankers who are being blamed. Despite the economic crisis gripping the country, many top bankers are still being paid massive bonuses. Even those bailed out by the government have continued with the controversial policy. The grilling by MPs this week has only tarnished their image further and led to lurid headlines in the British press. Branded ‘Scumbag Millionaires’ by one tabloid newspaper, four top bankers apologised for misjudging the economic crisis. Lord Stevenson, former Chairman of Halifax Bank of Scotland [HBOS], Andy Hornby, former Chief Executive of HBOS, Sir Fred Goodwin, former Chief Executive of the Royal Bank of Scotland [RBS], and Sir Tom McKillop, former Chairman of RBS, were subject to a four hour interrogation by a selection of cross party MPs.

Sir Fred Goodwin had once received a salary of £1.29 M and a bonus in excess of £2.8 M. The bank he was once in charge of has been bailed out to the tune of £20 billion by the British government. Andy Hornby had received a salary of £1.93 million and a bonus of nearly half a million pounds. His bank, HBOS has so far received £17 billion from the government. Hornby said the bonus culture had been “proven to be wrong in the last twenty four months”. But the apologies and statement will mean little to those struggling to pay their mortgages, worrying about debt, unemployment or worse. On the street members of the public said the bankers were only “motivated by self interest”, with many expressing disgust at the huge salaries and bonuses paid out to bosses while ordinary customers were dealt increasing bank charges and interest rates.

During the four hour debate it emerged that Paul Moore, a former employee at HBOS, had warned the bank and the Treasury Select Committee of problems ahead. In a memo to the TSC he said there was “... a total failure of all key aspects of governance. In my view and from my personal experience at HBOS, all the other specific failures stem from this one primary cause” and adds that “...I was obliged to raise numerous issues of actual or potential breach of Financial Services Authority regulations and had to challenge unacceptable practices...”

However, Lord Stevenson dismissed Moore’s interpretation of the risks. Paul Moore meanwhile has alleged he was ousted from his job at HBOS and replaced by Sir James Crosby who himself has since been appointed as a key advisor by the government to help sort out the mortgage and banking crisis. Moore was critical of his replacement saying Crosby “had never carried out a role as a risk manager of any type before”.

The accusations by Paul Moore has resulted in calls for a new investigation by the Conservative party. “What we need to know is whether the allegations now made at the time he was running HBOS are true or not, and I think the government need to find out if those allegations are true, then we can decide as country whether it’s right that Sir James Crosby is involved in the regulation of the banks going forward” the Shadow Chancellor, George Osborne, said.

But before Prime Minister Gordon Brown could raise any allegations with Sir James Crosby, the millionaire banker quit his position as vice-chairman of the FSA. Yesterday he was holed up at his million pound mansion in Harrogate in northern England as journalists and photographers waited outside [BBC].

On television and radio chat shows the anger coming from the public is still only simmering. But on picket lines and protests outside oil refineries in recent days the anger was definitely boiling over. The fight for jobs may becoming dirtier in the coming months as foreign workers take up UK jobs. New statistics show that the number of non-UK born workers increased by 214,000 in the year up to December while the number of British workers fell by 278,000 over the same period. It is a growing situation that has prompted calls to cut back the number of non-EU work permits being issued. Last year a record 151,000 work permits were handed out to foreigners. The statistics will only fuel the anger in a difficult job market. With opportunities at home drying up some may be looking abroad to beat the credit crunch. The Jobcentre Plus website is advertising almost 200,000 posts in Europe, far less than the number offered in the UK. However many offer very low wages and are no real solution to the millions of job seekers. But there are some opportunities even further a field, if one doesn’t mind the cold [Bloomberg]. The British Antarctic Survey is advertising several posts on its website paying upwards of £23,000 per year [antarctica.ac.uk].

Snow causes chaos in Britain

Throughout much of last week it was the continuing economic crisis that dominated the headlines. Protests have threatened to bring Britain to a halt after a serious of wildcat strikes broke out across the country. Oil workers, concerned about their jobs being taken by foreign workers, have walked out [BBC / Sky News]. However it was not the increasing industrial action that stopped England working. Instead, a few centimetres of snow managed to disrupt much of the country creating travel chaos and resulting in millions of pounds being lost as business closed early and many workers being forced to stay at home.

Described as a “heavy dumping of snow” by Sky News, the precipitation caused 1000 miles of traffic jams and closed all of London’s airport. At Heathrow a Cyprus airlines jet slipped from the runway, though no injuries were reported. Along un-gritted roads across the home counties motorists who braved the appalling road conditions found themselves slipping and sliding. Average speeds along many routes dropped to well below 40 km/h [20 mph] causing widespread gridlock. Those taking to public transport were left stranded after all of London’s buses were cancelled and much of the London Underground rail network was also brought to a halt. Shops in many areas were closed adding to Britain’s financial wows. It is estimated the weather may be costing the country in excess of one billion pounds.

For some the day was extremely enjoyable however. Most schools were shut and children took to the parks to build snowmen as others hit the slopes on sledges. At the dry ski-slope in Brentwood, Essex, the scene was more like the Swiss alps as snow gave a realistic feel to the facility. More snow is forecast with a severe weather warning announced by the Met Office [BBC / Sky News].

If the forecast by Punxsutawney Phil is right then winter may be here for another six weeks. “He saw his shadow and went back in,” said Jacqueline Parker, a spokesperson with the Nova Scotia provincial government told reporters. “It’s six more weeks of winter” she added [CTV News].

Today was after all Groundhog Day Groundhog Day. The annual holiday is marked in the United States and Canada. On the occaision a groundhog is used as a measure of weather prediction. If a groundhog emerges from its burrow and fails to see its shadow because the weather is cloudy, winter will soon end. If on the other hand, it is sunny and the groundhog sees its shadow, the groundhog will supposedly retreat into its burrow, and winter will continue for six more weeks. It is an event not observed here in the UK, though the irony may not have been missed by some.

Repossessions rise as recession deepens

In another sign of a deepening recession it was announced today that home repossessions have risen a massive 92% in the third quarter of 2008 compared to the same period the previous year. A total of 13,161 properties were repossessed in the three month period up to September 2008 and some analysts believe the outlook is extremely bleak as more and more people fall behind with their repayments. The number of homeowners who were behind with their mortgage repayments jumped to 340,000, a rise of 24% during the year and 10% higher than in the previous quarter. Sky’s business editor said there may be upward of 75,000 repossessions in the coming year according to the Council of Mortgage Lenders, on a par with the 1991 recession [Sky News].

Whether because of people overstretching their budgets or because of sudden redundancy, the news is not encouraging. House prices are falling and many are finding themselves in negative equity. Those that are attempting to sell their home are also finding things difficult as banks and building societies become less reluctant to lend money despite government bailouts.

There was also more bad news in the manufacturing sector today. Car production in December was down by half that of 2007 and with car sales down over the year by 11.7% on the previous year’s figure the prospect of more job losses seems likely [BBC].

Today there were further job losses after the sportswear manufacturer Reebok announced it was shedding 160 staff from its Bolton factory. UK manufacturing has slowed as orders have dried up. This in turn has forced companies to make cut backs in order to stay afloat. The vicious circle is pushing the numbers of unemployed close to 2 million [BBC].

But the shedding of jobs is not only confined to the UK. In the US, technology giant Microsoft has announced it is putting 5,000 people out of work over the next 18 months [BBC]. And as technology stocks fall chip maker Intel announced it too was laying off over 6,000 staff [BBC].

Official figures due to be released tomorrow are expected to show Britain has entered recession. Most people do not need any public announcement to see that the UK economy is in dire straits.

And with top economists warning companies not to invest in Britain and saying that the pound was “finished”, the future is far from rosy. Jim Rogers, a well-known investor, speaking on Bloomberg [video / video], said "I would urge you to sell any sterling you might have...It's finished. I hate to say it, but I would not put any money in the UK." The investment guru, like many others is looking to the east. Rogers has himself moved to Singapore, and his daughters, Happy and Baby B, are learning Mandarin Chinese which he sees as the “best skill one can pass on”. But although he sees both China and India as fast emerging economies he says even they must solve some of the more physical problems of air and water pollution.

The West has long been the destination of those from Asia seeking to better their financial prospects. The tide now appears to be turning.

UK - Recession claims more retail victims

Sales have already started at many UK stores

The recession has claimed its third victim in less than 48 hours after record store Zavvo called in administrators [BBC / Sky News]. Only yesterday the Officer's Club, a men's clothing store, started to close 32 of its 150 shops immediately after they filed for administration. The remaining stores were set to be sold off. But a last minute buyer may save more than 900 jobs [BBC]. Only hours after the Officer’s Club made the announcement, Whittard of Chelsea chain also filed for administration but was rescued after a private equity firm bought it [BBC / Sky News].

Britain’s retailers have already experienced one of the worst Christmases on record despite launching cut price sales. Many stores slashed prices by more than 50% to attract shoppers. And to some extent it has worked. London's west end streets reported their best day of the year on Tuesday, with more than £60 million of business being done by 500,000 shoppers on Oxford Street, Bond Street and Regent Street. But it is unlikely to make the retailers much profit. The shopper is becoming exceeding savvy and watching how they spend. Some shops have also angered customers after slashing prices by half without warning soon after customers have purchased them full price. There are stories that on some occasions, some shoppers have re-purchased the same item and later returned the previously bought item for a refund.

In order to recoup costs the sales have already started at many retailers. Some stores are even set to open on Christmas Day. For those with money and secure employment there are many bargains waiting to be snapped up. But the future look extremely bleak for thousands of shop workers set to be laid of shortly before the new year. MFI the furniture retailer has already shut its doors and Woolworth is beginning to wind up its business with stores even selling of the fittings [BBC].