History > 2009 > UK > Economy (II)
May 10 2009
Labour and Tories
compete in the politics
The fallout from the pre-budget report
has made the dividing lines in British politics clear
– how deep, where, and how fast
should cuts be made to reduce Britain's deficit
Sunday 13 December 2009
This article appeared on p24 of the Focus section of the Observer on Sunday 13
It was published on guardian.co.uk at 00.20 GMT on Sunday 13 December 2009.
The lights were still glowing and the arguments raging at 2am inside the
Treasury. Tempers were frayed and exhaustion was setting in. In less than 11
hours, Alistair Darling, the chancellor, would rise to his feet in the Commons
to deliver his crucial pre-budget report (PBR). But the government remained at
Rows about who should take the pain, and who the gain, divided not only No 10
from No 11, but cabinet minister from cabinet minister. Even members of the same
family fought over the limited spoils on offer.
Ed Balls had emerged from negotiations delighted at having won a 0.7% increase
in his budget for schools. But his wife, Yvette Cooper, the work and pensions
secretary, was seething following a disagreement with the Treasury over personal
tax allowances. According to one account, she went "ballistic" with Darling and
at one point threatened to resign. Lord Mandelson, the business secretary, is
said to have had differences with Gordon Brown and Balls until the last moment,
when the final package was agreed.
"It is the kind of thing that happens. There are disagreements, even arguments,
right up to the end. People care. But you get there in the end," said one source
close to the discussions.
The atmosphere was highly charged because everyone in government knew it was a
crucial moment – economically and politically. With borrowing soaring towards a
staggering £178bn this financial year and debt on course to double as a
percentage of GDP compared with a few years ago, tough decisions had to be
taken. On the financial markets, traders were nervous. They wanted to hear a
hard-headed plan from Darling for bringing the deficit down. Without it,
international markets would lose faith in UK plc's ability to pay its debts,
with devastating consequences.
Yet with a general election just a few months away, economic honesty had to be
balanced against political necessity. Labour was recovering in the polls, eyeing
the possibility of a hung parliament: some were even dreaming of going one
better. "Too much honesty and austerity and people will take fright; too little
and people will smell lack of leadership and opportunism. It will be a very
difficult balancing act," said one Labour MP, shortly before Darling addressed
The opposing views inside government about how to approach the PBR – how to play
the politics of pain – had been clear for weeks. In fact, the seeds of many of
those disagreements had been sown long ago. Early in his time as chancellor, in
late 2007, Darling had been astonished and angered at Brown's attempt to prevent
him reducing economic growth forecasts. Brown feared gloomy predictions would
hurt Labour. The two men argued in private and on those occasions, ahead of the
March 2008 budget, Darling won.
The chancellor has always taken the view that he, and the Labour government,
must earn medium-term and long-term credibility by telling it as it is, rather
than massaging or hiding the truth for political gain.
In the run-up to last Wednesday, that same tension with Brown resurfaced.
Darling wanted to be far more explicit about where spending would have to be
reined in over the next four years. "Alistair takes the view that you can't
sweep all the bad news under the carpet, whereas Brown thinks, 'How will people
think this reflects on me?'," said one adviser.
Darling's officials were even asked to examine the merits of a deferred rise in
VAT that would hit everyone in the land and raise many billions. But Brown and
Balls, while aware of the need to have a credible deficit-reduction plan, were
keener to use the PBR to sharpen the political "dividing lines" with the Tories.
They knew the Conservatives had dipped in the polls since David Cameron and
George Osborne announced their austerity plans for the economy, including a pay
freeze for many public sector workers, in early October. It was a question of
emphasis and tactics. Brown and Balls looked at the PBR more as a political
opportunity and less as an economic danger. Whatever could be done on tax and
spending to discomfit the Tories, should be done. If the Tories were to complain
afterwards that Labour had been too timid about cutting the deficit, this could
play into their hands, because it would imply the Tories would tighten the screw
There were two key ways, they believed, to make the dividing lines clearer.
First, they needed tax announcements that would help sharpen the contrast in the
public mind between Labour as the party of the many, those on low and middle
incomes, and the Tories as that of the wealthy, privileged few. Second, Balls
and Brown wanted spending plans that would allow Labour to go into an election
claiming that, despite everything, it would remain the party that would defend
core public services of education, health and the police, while the Tories would
impose across-the-board cuts. "Ever since Gordon was first involved in devising
New Labour, for him it has always been about Labour investment versus Tory
cuts," said one party adviser who has known him for more than 20 years. "Nothing
will ever change that mindset."
When Darling sat down at 1.15pm on Wednesday, Brown, sitting to the left of the
chancellor, and Balls, two places farther along, were both beaming. Their
fingerprints were all over the statement Darling had just delivered. The PBR was
highly political and would hit the rich. The dividing lines were on every page.
Bankers (the kind of people Mandelson once said he did not mind getting "filthy
rich") would be stung by a new tax on their bonuses. Inheritance tax thresholds
would be frozen, meaning more people inheriting sizeable estates would be
dragged into paying death duties. (The Tories have promised to exempt all but
But core service would be protected for two years. Spending on schools would
rise and the budgets for health and the police would be protected. Today Brown
says on his podcast: "We will always protect those services – the services of
the mainstream majority." Yes, there was pain for the many announced by Darling,
in the form of a further 0.5% rise in national insurance contributions, except
for those earning £20,000 or less, who would be exempted. It would, however, be
pain delayed until April 2011. There would also be a cap of 1% in public sector
wage rises for two years. But there was no plan to raise VAT down the line. And
there was also little in the way of a detailed plan on how spending would be cut
by other departments over the next two years. Ministers are committed to halving
the deficit in four years, so the promise to defend core budgets on frontline
service would inevitably mean savage cuts elsewhere. But Darling's statement was
devoid of comment on where the axe would fall. How would the markets, the press,
opposition parties and, above all, voters react? Was it too harsh to be popular
and credible, or not harsh enough? How would the politics play out?
The markets barely flinched on the day of the PBR itself. In fact, the price of
gilts – the debt the government issues to raise money – rose very slightly,
indicating that investors calculated that the UK was a less risky borrower than
before. This was because Darling's borrowing forecast for this year was a
fraction lower than expected. But as so often with financial statements, it
takes time for opinion to settle. Thursday morning's headlines helped shape the
mood. They made appalling reading for the chancellor. While the Sun's headline,
"Darling just screwed more people than Tiger Woods", did not help, it was the
one in the former New Labour supporting Times – "The axeman dithereth" – that
most annoyed Darling. The Tories weighed in with charges that the government had
acted irresponsibly, and for shameful political reasons. Cameron, who has said
his party would cut spending much faster than Labour, likened the prime minister
and chancellor to "a couple of joyriders in a car, smashing up the
neighbourhood, not caring what is going to happen".
By Thursday, the markets were also buying the pessimism. Yields, or the return
enjoyed by investors holding government debt – which rise when the price of
gilts falls, indicating a higher borrowing risk – rocketed for 10-year gilts by
0.14% to 3.8%, the steepest one-day climb for months. On Friday, gilt yields
continued to increase. Moyeen Islam, from Barclays Capital, explained: "Our view
is that the PBR did very little to allay the fears of the market over whether
there is a path being outlined towards medium-term fiscal sustainability."
Inside No 10 and the Treasury, people feel sore and bruised this weekend. But as
one official put it, "no one is killing himself". They knew they had a virtually
impossible hand to play in trying to sell tax rises and a halving of the deficit
to the public just before a general election campaign.
No 10 answers its critics by insisting that sound economic thinking, rather than
political manoeuvring, determined its message in the PBR. Officials say that
four themes lay behind its approach. First was the need to protect fragile
growth in the economy by maintaining overall spending increases for another
year. A vital difference between Labour and the Tories is that the former
believe economic recovery would be choked off if spending was to be cut too
quickly. Second was the need to show its commitment to halving the deficit over
four years, an aim now backed by legislation. Third was the need to ensure
"fairness in the tax system", by getting the well-off to pay most, while
protecting low earners. And fourth was the need to "protect frontline services",
meaning schools and the health service. To those who claim he has not done
enough, Brown's allies also point out that he is pushing hard for international
agreement on a so-called Tobin tax on bank transactions that would raise
But the government's problem is that it was not just the press and the
opposition parties that laid into the PBR. Independent experts also tore into it
with increasing ferocity as the week went on. The respected Institute for Fiscal
Studies (IFS) said the unspoken result of the package was that public spending
would have to be cut by a fifth by 2013-14 in areas such as defence, higher
education, housing and transport as a result of the government's commitment to
halve the deficit but maintain spending on core services.
IFS's director, Robert Chote, was scathing about Darling's obfuscation. "The
chancellor spelt out neither how much he wanted to spend in total on public
services, nor exactly how much of this spending he was planning to protect. Even
if these numbers are not yet written in stone, it is hard to see why the
requirements of good policy-making should demand such wilful obscurity."
Such criticism is music to the ears of the Tories. Yesterday Osborne accused
Brown of "a serious dereliction of duty" in failing to address the deficit
problem. Tory frontbenchers have been told to find substantial extra savings
across the board as they prepare for government. Yet the Conservatives are also
treading a tightrope. Since their party conference in Manchester in October,
when they decided to "go for austerity" and promote themselves as the heirs to
prudence, their lead over Labour has narrowed in most opinion polls. Ken Clarke,
the shadow business secretary, has told Osborne to be careful about overdoing
talk of cuts.
Labour may be getting it in the neck for ducking hard questions and failing to
be more honest in the PBR, but the Tories will hardly be singing the most
popular campaign theme tune if it is one about the need to administer more pain
than Labour. As one leading Tory put it: "We have got to watch it a bit. It is
all very well saying we would cut faster, but there is not much point in saying
it if it scares away the voters. As George [Osborne] says, we really are all in
this same mess together."
Labour and Tories compete in the politics of pain, O, 13.12.2009,
Footsie pushes above 5,000
Published: September 9 2009 20:39 | Last updated: September 9 2009 20:39
The Financial Times
By Jennifer Hughes, Senior Markets Correspondent
Hopes for a flurry of company takeovers and growing belief in the strength of
economic recovery on Wednesday propelled the FTSE 100 index through the 5,000
level for the first time in almost a year.
An impressive rebound in stock markets around the world, which began in March,
has drawn fresh momentum from a potential £10.2bn bid for Cadbury, the UK
confectionery group, by US food giant Kraft.
Investors on both sides of the Atlantic are betting that the takeover move, a
sign of growing corporate confidence, could herald a pick-up in M&A across the
globe. In New York, the S&P 500 index was heading for an 11-month high, while
Europe’s leading shares rose for a fifth day in succession.
The gains took London’s blue-chip index to a close of 5,004.3, a gain of 1.15
per cent on the day, and 42.5 per cent above its low of six months ago. The last
time the FTSE 100 closed above 5,000 was September 2008, when financial markets
were in the grip of a steep sell-off following the collapse of US investment
bank Lehman Brothers.
Graham Secker, equity strategist at Morgan Stanley, said that equities, helped
by the improving economic outlook and continued support from the world’s central
banks, were enjoying a “sweet spot” that would sustain the rally for now.
“Growth is picking up and the stimulus taps are still full on. That is a pretty
good environment for stocks,” he said.
A strong performance from the heavyweight oil sector, as crude prices rose by
more than a dollar a barrel, underpinned the rise in share prices. British
Airways surged 5 per cent on hopes deals with Iberia and American Airlines were
There were signs that “short” investors betting on price falls had been caught
out by the gains. Shares in debt-laden Yell, the directories group, have leapt
more than 150 per cent in a month after initial rallies squeezed investors who
had sold the stock short, forcing them to buy back the shares.
The Bank of England has pumped almost £150bn of cash into the financial system
and has indicated it will continue its “quantitative easing” programme at least
until the end of October. The yield on two-year gilts was 0.934 per cent, near
its lowest since the recession of the early 1990s.
But some analysts were wary of forecasting further gains. Philip Isherwood at
Evo Securities said 5,000 “is a nice big round number but we’ve had a good run
now and it is getting harder to pick value”.
Much of the equities rally has been based on the sharp improvement in market
expectations for a recovery. This has been led by so-called momentum indicators,
which have registered sharp upturns in business sentiment. “These indicators
don’t just follow a V-shape, they will falter. The question is to what extent
we’ve now double-counted any good news,” said Mr Isherwood.
Footsie pushes above 5,000, FT, 9.9.2009,
The Big Question:
Why has Britain become more unequal, and can it be changed?
Wednesday, 22 July 2009
By Nigel Morris, Deputy Political Editor
Why are we asking this now?
Because a damning picture of an increasing dominance of top jobs by children
from the wealthiest families emerged yesterday in a strongly worded report.
It is difficult for ministers to dismiss its findings, as the detailed
analysis of the "closed shop" operating in the most prestigious professions was
commissioned by Gordon Brown and was written by a panel of experts led by the
former Health Secretary Alan Milburn.
Tony Blair committed the party to boosting social mobility a decade ago when he
told the Labour conference that the "old elites [and] establishments" had "run
our professions and our country too long".
Critics protested yesterday that the former prime minister's voter-friendly
rhetoric had not been matched by action and that landing a top job depends as
much as ever on who – rather than what – you know.
What did the study discover?
Only seven per cent of youngsters are privately educated. But 75 per cent of
judges, 70 per cent of finance directors, 55 per cent of solicitors, more than
50 per cent of top journalists and 45 per cent of senior civil servants are
Well-paid professional jobs continue to be passed down between the generations:
doctors, lawyers, accountants and bankers typically grow up in families with
incomes two-thirds higher than average.
Hasn't that always been the case?
Of course. But the Milburn study, Fair Access to the Professions, presents
research that the trend has accelerated in recent decades. It says: "Access to
the professions is becoming the preserve of those from a smaller and smaller
part of the social spectrum."
More stockbrokers, scientists, engineers, bankers, accountants, journalists,
doctors and lawyers in their thirties came from well-off backgrounds than their
50-year-old counterparts. The study forecasts that if action is not taken to
reverse the historical trend then the typical professional of the future will
come from the wealthiest 30 per cent of homes. In other words, the professional
elite will become even more elitist.
There are signs that some professions – including business executives,
solicitors and politicians – are becoming less public school dominated, but the
trend is only slight. Journalism, however, is more exclusive while medicine is
What is the reason?
Researchers believe selection procedures in some professions have been tightened
to recruit more people similar to those already in the job.
Some professions have also become virtually graduate-only. In recent decades
senior accountants could have started as bookkeepers or national journalists as
local newspaper messengers. Such career ladders, offering a chance of social
mobility, have diminished. Vocational apprenticeships rarely translate into
The Milburn panel also noted a trend of upper middle-class families helping
their children get a foot in the door of their chosen career by getting them an
internship or work experience.
Wasn't opening up universities meant to change that?
The Government has moved steadily towards its long-term target of getting 50 per
cent of children in higher education. The proportion is currently 42 per cent
and British universities this year received record numbers of applicants. But
suspicions remain over how substantially this has benefited lower-income
families – particularly with the financial burden of tuition fees.
The Milburn report says: "Access to university is extremely inequitable and the
correlation between the chances of going to university and parental income has
strengthened in recent years. Far too many young people who have the ability to
go university are unable to do so because of their background."
Why does this matter to the economy?
Seven million white-collar posts need to be filled over the next decade – the
vast majority of new jobs in the economy. Struggling to achieve that could put
Britain at a competitive disadvantage with nations such as China and India
heavily investing in skills.
Mr Milburn and his team argued that it was in the interests of all the
professions to cast their net as widely as possible. The former minister, who
grew up on a council estate, called for "a second great wave of social mobility"
similar to that experienced by Britain half a century ago to help fill the
How does the Government respond?
Downing Street conceded that opening up the professions is an area "where we
need to do more". But it insisted that it had made widespread progress in
tackling social inequality over the last decade. It said record numbers of
students were in higher education, the highest-ever proportion of 16- to
18-year-olds were in education and training and 600,000 youngsters had been
lifted out of poverty.
How can the exclusivity be changed?
Mr Milburn believes it has to be challenged from the bottom up by encouraging
youngsters aspire to a wider range of professions. Among 88 recommendations, his
team calls for careers advice to begin in primary school and for state schools
to teach "soft skills", such as public speaking. Teamwork could be encouraged by
establishing armed services cadet forces, currently largely the preserve of
It backs a mentoring scheme for children from disadvantaged backgrounds and an
Obama-style "yes you can" campaign to help them raise their sights. Universities
could be opened to a wider range of people by offering "degrees without fees" to
students living at home and for universities to compile information about
undergraduates' social backgrounds. The professions should be obliged, it says,
to give more details of recruitment and internship policies.
Is there other evidence of widening inequality?
While more families have been lifted out of poverty under Labour, the gap
between the worst-off and most affluent has not closed. It has, if anything,
widened slightly. The best-off 1 per cent of the population owned 21 per cent of
the national wealth in 2003; the proportion in 1996 was 20 per cent. If housing
is excluded, the proportion of Britain's wealth concentrated in the hands if the
richest one-hundredth of citizens has jumped from 26 per cent to 34 per cent
over the period.
Will anything actually change?
Government sources say Mr Brown is sensitive to the issues raised in the report,
pointing out that he would not have commissioned it if he did not think there
was not a problem. Ministers could even begin setting out ways of tackling the
inequality as early as next week – possibly with a view to putting their ideas
to voters in the election expected next spring.
Their problem is the natural scepticism of electors who might reasonably ask:
what is the point of Labour if it has failed to boost social mobility after 12
years in power?
Has inequality widened over the last decade?
* Top jobs increasingly go to children already in the best-off families.
* Degrees are more important than ever for landing well-paid posts.
* The gap between the wealthiest and worst-off has grown.
* More youngsters from working-class homes are going to university than ever
* Numbers of youngsters growing up in poverty have fallen.
* The proportion of public school-educated recruits is falling in some
The Big Question: Why
has Britain become more unequal, and can it be changed?, I, 22.7.2009,
Pubs closing at rate of 52 a week as hard-up drinkers shun
July 22, 2009
From The Times
The rate of pub closures is accelerating, with 52 going out of
business every week at a cost of 24,000 jobs over the past year, figures show.
Almost 2,400 pubs and bars have vanished from villages and towns in the past 12
months, according to research for the British Beer & Pub Association (BBPA).
Local pubs serving small communities have been the worst hit, the association
The number of closures represents the steepest rate of decline since records
began in 1990 and has risen by a third compared with the same period last year,
when 36 pubs were closing every week.
A preference for drinking more cheaply at home, rather than going out, is
thought to have contributed to closures. A BBPA spokesman said: “The biggest
impact is the recession. There are fewer people out and fewer people spending
money in pubs and bars. Pubs are diversifying but, unfortunately, if you are a
community pub you can’t transform yourself into a trendy town centre bar.”
The BBPA said that the total number of pubs and bars has fallen from a steady
60,000 “for years” to the 53,466 still trading. It added that of the 52 premises
closing each week, 40 are local pubs and nine are high street bars. The
recession is claiming about 461 bar jobs a week, according to the figures,
compiled by CGA Strategy, the market information group.
The BBPA said that establishments that serve foods, such as gastropubs, were
more resilient, closing at a rate of only one a week. By contrast, branded pubs
and café-style bars are faring relatively well and are opening at a rate of two
every seven days.
The fall in spending in pubs and bars is the latest in a string of setbacks for
publicans in recent years. Inflationary pressures cut drinkers’ spending power
in 2007, resulting in a drop in revenue. The smoking ban in 2007 and changes to
the licensing laws have dealt further blows.
The BBPA said that higher taxes on beer imposed in the past two Budgets had
contributed to the industry’s woes, adding about £600 million to the pub
industry’s tax bill.
In addition, some of the larger pub companies, such as Punch Taverns and
Enterprise Inns, have come under scrutiny this year, with an investigation by
the Commons Business and Enterprise Committee into their tied-trade business
models. The committee said in May that it had found evidence that the behaviour
of such companies was contributing to the sharp rise in pub closures.
The BBPA said that the closure of pubs had cost the Government an estimated £254
million in tax revenue in the past 12 months — a figure rising by £5.5 million
every week. It added that job losses in the sector were costing the Government
£1.53 million a week in jobseeker’s allowance.
David Long, the chief executive of the BBPA, said: “Closing pubs are not only a
loss to communities, but a loss to the Treasury. The Government should look at
valuing and rewarding pubs as community assets. Not only would this have social
policy benefits by supporting a hub of community cohesion, but financial policy
benefits in terms of tax revenues, particularly at a time when the public purse
The BBPA said that, in the past, closed pubs had often been bought by property
developers and turned into flats, but that since the decline of the property
market, pubs that had shut had less appeal to prospective buyers and had been
left boarded up. A spokesman for the association said: “While some have been
bought by other people — usually property developers rather than new landlords —
since the downturn, pubs have become a lot less attractive to developers.”
Estate agents said that pubs in villages, where local housing is in short
supply, still made a compelling case for developers. Chris Coleman-Smith, head
of auctions for Savills, said: “If it is in the back of beyond, where a pub
might struggle for trade, it is probably better off as a residential
development, either a house or a few units, for prospective homebuyers.”
Pubs closing at rate
of 52 a week as hard-up drinkers shun their local, Ts, 22.7.2009,
Unemployment jumps by record 281,000
The number of people claiming jobseeker's allowance
increased by a relatively small 23,800 in June to 1.56 million
Wednesday 15 July 2009
Ashley Seager, economics correspondent
This article was first published on guardian.co.uk at 12.01 BST on Wednesday 15
It was last updated at 12.01 BST on Wednesday 15 July 2009.
Unemployment shot up by a record 281,000 in the three months to May, official
data showed today.
The rise took the jobless total to 2.38 million, the highest level since 1995,
on the broadest measure of unemployment, the ILO (International Labour
Youth unemployment jumped to a 16-year high of 726,000 after a quarterly rise of
95,000, while the number of people out of work for longer than a year rose by
46,000 to 528,000, the highest for 11 years.
Brendan Barber, general secretary of the TUC, said today's figures were "truly
"It's particularly worrying that over half a million unemployed people have been
out of work for at least a year, including 133,000 young unemployed people. With
a new generation of school and college leavers soon starting to look for work,
our unemployment crisis will get even bigger," Barber warned.
Alan Tomlinson, a partner at UK insolvency practitioners Tomlinsons, said: "This
disturbing rise in the number of unemployed reflects the rise in the number of
companies going under or struggling to survive."
There was one bright spot as the number of people claiming jobseeker's allowance
increased by a relatively small 23,800 in June to 1.56 million, although that
was the worst total since Labour came to power in 1997.
Howard Archer, economist at IHS Global Insight, said this suggested the rise in
unemployment might be tailing off.
"Overall, it is hard at the moment to be anything else than pessimistic about
the labour market," he said.
The so-called claimant count has now increased for 16 months in a row and is
more than 700,000 higher than a year ago.
Shortly after the figures were released, Jaguar LandRover delivered another blow
to the economy, announcing it would stop producing its X-Type car at its
Halewood plant on Merseyside with the loss of up to 300 jobs.
Job losses to continue
City economists generally saw little cheer in today's data, with Ross Walker of
Royal Bank of Scotland predicting the bad news would continue for many months.
"Maybe the pace of layoffs could begin to moderate towards the end of this year
but I think we're still going to be seeing job losses well into next year," he
David Kern, the chief economist at the British Chambers of Commerce, predicted
unemployment would peak at about 3.2 million next year.
The number of people in work fell by 269,000 in the latest quarter to 29
million, after a record fall of 0.9% in the employment rate to 72.9%.
More than 300,000 people were made redundant in the three months to May, the
second highest figure on record, and a rise of 31,000 on the previous quarter.
Other data from the Office for National Statistics showed that vacancies fell to
a record low of 429,000 in the three months to June, down by 35,000 from the
Manufacturing jobs continued to fall, down by 201,000 over the past year to a
record low of 2.6 million.
Average earnings increased by 2.3% in the year to May, up by 1.4% on the
previous month, as the effect of bonuses paid earlier in the year fell out of
the latest figures.
The number of people classed as economically inactive, including those on
long-term sick leave or who have given up looking for a job, increased by 64,000
in the latest quarter to 7.92 million, 20% of the workforce.
Unemployment jumps by
record 281,000, G, 15.7.2009,
Ratings agency downgrades outlook for UK economy
• Government debt burden may approach 100% of GDP
• FTSE 100 tumbles more than 2%
• Sterling falls to $1.55 from $1.58
Thursday 21 May 2009
Ratings agency Standard & Poor's today downgraded its outlook for the British
economy, saying it had grown increasingly worried about the country's ballooning
The news pushed shares in London down sharply and caused gilt yields to soar on
renewed fears about the recession-hit UK economy. The FTSE 100 tumbled more than
2%, or 100 points, to 4352. Sterling, which had reached a six-month high of
$1.58 earlier, tumbled three cents to $1.5530.
"The outlook revision is based on our view that, even factoring in further
fiscal tightening, the UK's net general government debt burden may approach 100%
of GDP and remain near that level in the medium term," S&P credit analyst David
Beers said in a statement.
However, S&P said it was retaining the 'AAA' long-term and 'A-1+' short-term
ratings for Britain's sovereign debt, the vast bulk of which is in gilts.
"We base our opinion on our updated projections of general government deficits
in 2009-2013," Beers said, referring to the huge upward revisions to government
borrowing projections chancellor Alistair Darling unveiled in his budget on 22
"These projections reflect our more cautious view of how quickly the erosion in
the government's revenue base may be repaired, the extent to which the growth in
government spending can be curtailed and, consequently, the pace at which
historically high fiscal deficits are likely to narrow," he added.
But, he said, the agency believed the overall ratings on the UK continued to be
supported by its wealthy, diversified economy, a high degree of fiscal and
monetary policy flexibility, and its relatively flexible product and labour
"However, last month's budget announcements underscored that UK public finances
are deteriorating rapidly - at a faster rate than S&P had previously assumed."
The news came as figures showed that public sector net borrowing hit a record
for April of almost £8.5bn.
But other news added to growing evidence that the economic slump may be past its
worst. Figures showed retail sales in April grew 0.9% from March, much faster
than expected, leaving them 2.6% up on a year earlier. That reinforced survey
evidence from the British Retail Consortium and the CBI that sales grew strongly
last month, boosted by Easter trading.
Other figures, though, showed mortgage lending dropped sharply in April while
business investment slumped in the first quarter of the year.
downgrades outlook for UK economy, G, 21.5.2009,
BP profits slump 62% on plunging oil price
April 28, 2009
From Times Online
BP's profit plunged by 62 per cent in the first quarter of 2009 after oil
prices fell from July's record highs and demand for crude and gas declined in
Net profits in the first three months of its financial year fell from $7.1
billion (£4.8 billion) in 2008 to $2.56 billion which BP blamed on what it
called "lower realizations", or lower oil prices. Despite the decline, today's
result was ahead of analysts' forecasts for profit of $2.28 billion and shares
in BP rose 1.1 per cent to 489p in early trading.
BP said that during the first quarter, the price it achieved for each barrel of
oil was $41.26, compared to $90.92 in 2008. During last year, oil prices reached
a record high of $147 a barrel in July.
Gas was sold for $3.63 per thousand cubic foot, against $5.88 this time last
Even compared with the fourth quarter of last year, underlying profits were
down, again reflecting the softening oil price. Profits were off $200 million,
or 8 per cent, compared with the fourth quarter of last year.
The decline in production revenues was tempered by an 11 per cent decrease in
production costs, although this was not enough to contend with such a sharp
swing in the oil price. Income at the production and exploration division was
down 57 per cent to $4.3 billion.
Despite the trading pressures, BP increased production by 4 per cent during the
quarter, as its Thunder Horse fields in the Gulf of Mexico began to ramp up
production. The company repeated its statement that it expects production
volumes to increase during the whole year, but said the exact amount would
depend on the oil price and quota restrictions decided by OPEC, the oil
Profits at BP’s other main trading division, its refining and marketing
operation, were also down 13 per cent to $1.1 billion. Refining volumes were
"significantly worse" than a year ago, and margins were lower. BP expected the
"overall weak environment for marketing and petrochemicals to continue" into
BP was also hit by an increased pension charge, paying $368 million in
retirement costs in the three months, compared with $246 million a year ago. It
blamed a reduced "expected return on pension plan assets", reflecting the
collapse in equity markets around the world.
Despite the economic pressures, BP increased its quarterly dividend payout by 4
per cent to 14 cents a share. Aided by the weakness of the pound, in sterling
terms the dividend is 9.584p, up 40 per cent. It ended the quarter with net
debts of $26.7 billion.
BP profits slump 62% on
plunging oil price, NYT, 28.4.2009,
UK slowdown sharper than feared
The Financial Times
Published: April 24 2009 10:02
Last updated: April 24 2009 10:31
By Norma Cohen
The UK economy contracted much more sharply in the first quarter of this year
than economists expected, with output reduced in both services and
It is the fastest quarterly decline in national income since the third quarter
of 1979, according to Richard McGuire, fixed income strategist at RBC Capital
Martin Wolf: Why Britain’s predicament is so bad - Apr-23UK business confidence
stabilises - Apr-23GDP in the first three months of 2009 contracted by 1.9 per
cent from the level seen in the fourth quarter of 2008, according to the Office
for National Statistics. Economists polled by Reuters had expected an average
decline of 1.5 per cent.
“The provisional UK GDP figures for Q1 suggest that the recession has so far
been even deeper than previously thought.,” said Vicki Redwood, economist at
“It also deals an instant blow to the chancellor’s forecast of a 3.5 per cent
drop in GDP this year. For that to be achieved, GDP would have to be broadly
flat from the second quarter onwards – yet the surveys are already pointing to
another fall of 1 per cent or so in the second quarter,” she added.
Alistair Darling, the chancellor, predicted the biggest fall in output since the
Second World War in this week’s budget but maintained the UK would return to
growth of 1.5 per cent next year. His forecast was more optimistic than the
consensus of private sector forecasts.
Overall, the sharpest decline was seen in the manufacturing sector, where output
fell by 6.2 per cent from the previous quarter.
Separately, the Society of Motor Manufacturers and Traders underlined the depth
of the downturn in the car industry. It said that UK car production more than
halved in March to bring first-quarter volumes down 56.6 per cent from the year
before. Commercial vehicle production fell by 63 per cent in the quarter, after
a further steep fall in March.
Capital Economics noted that the biggest surprise in the GDP data was the 1.2
per cent contraction seen in the output of the services sector. In particular,
the decline was sharp in business and financial services.
Mr McGuire noted that quarterly contraction in business and financial services
was the sharpest since the series began in 1983.
Colin Ellis, economist at Daiwa Securities, said: “Today’s data were a sharp
reminder that the UK is still a long way away from any recovery.” He noted that
the weakness that shows in up the initial estimate of GDP explains the Bank of
England’s monetary policy committee’s decision to pump £75bn into the economy
through the banking system.
“The resulting gap between demand and potential supply is only likely to widen
further over the rest of this year – which is why the MPC has opted to pump
£75bn into the economy to boost demand. But we are increasingly nervous that the
new money may have only a limited impact on real output,” Mr Ellis said..
However, he said there may be a silver lining in the latest data because, having
contracted by 3.5 per cent in the last six months alone, there may be less of a
reduction in output in the months ahead.
UK slowdown sharper than
feared, FT, 24.4.2009,
British Economy Shrinks 1.9 Percent in Q1
April 24, 2009
Filed at 5:06 a.m. ET
By THE ASSOCIATED PRESS
The New York Times
LONDON (AP) -- The British economy shrank in the first quarter at its
sharpest rate since the early days of Margaret Thatcher's government thirty
years ago as the financial crisis continued to wreak havoc on banks, retailing
In its first estimate for the January-March period, the Office for National
Statistics said Friday that gross domestic product, or GDP, contracted by a
massive 1.9 percent from the previous three month period -- the biggest drop
since 2.4 percent posted in the third quarter of 1979.
That was far more than the 1.6 percent decline posted in the fourth quarter of
2008 and above analysts' expectations for a more modest 1.4 percent drop.
The latest decline means that Britain's economy has shrunk for three consecutive
quarters and there are very few indications that things will improve in the near
Compared with a year ago, Britain's GDP was 6.2 percent lower in the first
quarter, compared to the 4.9 percent year-on-year decline seen in the fourth
quarter of 2008.
Earlier this week, the British government laid out the hope the economy will
start to grow towards the end of this year but still forecast that output this
year will shrink by a post-World War II record of 3.5 percent.
The average postwar recession in Britain has lasted for around 15 months, which
would, if replicated during this current downturn, mean that the economy will
continue contracting until the autumn of this year. However, most economists
think that this recession will last longer, and possibly last well into 2010.
''It's early days yet, but the drop opens up the possibility of GDP in 2009 as a
whole falling by even more than the 4 percent we currently expect,'' said Vicky
Redwood, economist at Capital Economics.
According to the International Monetary Fund's latest forecasts, Britain would
likely be one of the worst hit economies because of its dependence on the
housing and financial sectors. The IMF is projecting that Britain's output will
contract by 4.1 percent this year, much more than its previous forecast of a 2.8
A more detailed look at the figures shows that the weakness in the economy was
broad-based, with both services and manufacturing output sharply down in the
wake of the banking crisis, the seizing up of lending and already-confirmed
recessions around the world, from the U.S. to Germany and Japan.
In a separate release, the statistics office did post some moderately good news.
It said that retail sales during March rose by a monthly 0.3 percent, primarily
because of higher food sales. The rise offered some cheer for the retail sector
after grim figures for February revealed a worse-than-expected 1.9 plunge plunge
British Economy Shrinks
1.9 Percent in Q1, NYT, 24.4.2009,
Budget 2009: at a glance
Key details from Alistair Darling's 2009 budget
Wednesday 22 April 2009
• British economy forecast to shrink in 2009 by 3.5%. Growth forecast for
2010: 1.25%; and 2011 onwards: 3.5% a year.
• Inflation (CPI) expected to reach 1% by end of 2009. RPI will fall to -3.5% by
end of year.
• No income tax increases this year.
• Income tax rate on those earning more than £150,000 to increase from 45% to
50% from April next year, a year earlier than planned.
• Personal tax allowance of those earning over £100,000 to be withdrawn from
• Pension tax relief restricted for those on incomes over £150,000 from April
2011. It will be gradually tapered to the same 20% rate received by most people.
• Fuel duty to rise by 2% from September and 1% above indexation every April for
next four years.
• Tobacco duty to rise by 2% from 6pm today.
• Alcohol duties to rise by 2% from midnight.
• Public sector net borrowing of £175bn in 2009, some 12.4% of GDP; £173bn
next year, then £140bn, £118bn and £97bn each following year.
• UK net debt, including the cost of stabilising the banking system, at 59% this
year, 68% next year, and rising to 79% by 2013-14.
• Inflation target remains at 2%.
• Tax avoidance and evasion loopholes to be closed, resulting in £1bn of extra
revenue over the next three years.
• The child element of the Child Tax Credit to increase by £20 from April
• £100 extra for child trust fund vouchers for new babies with disabilities,
extra £200 for those with severe disabilities.
• State redundancy pay to rise from £350 to £380 a week.
• Grandparent care for young relatives to count towards basic state pension.
• Last year's increase in winter fuel allowance to be extended for another year
– worth £250 for over-60s and £400 for over-80s.
• Stamp duty holiday on homes under £175,000 extended until end of 2009.
• £80m extension to HomeBuy Direct – the government shared equity mortgage
scheme, which has already received interest from over 32,000 people since
• £500m extra support for housing industry; £100m of this for local authorities
to build energy-efficient housing.
• £50m to accelerate modernisation of housing for military families.
• Annual ISA limit to be increased from £7,200 to £10,200, half of which can
be invested in cash. From this year for over-50s, from next year for others.
Business and employment
• Loss-making companies can reclaim tax paid on profits made in past three
years. Average repayments of £4,000 expected for each year.
• Extension of scheme allowing businesses to defer tax bills.
• Support for companies' cash flow, with a top-up trade credit insurance scheme
to match private sector trade credit insurance provision.
• Additional £1.7bn funding for jobseekers.
• From January 2010 everyone aged under 25 who has been unemployed for a year to
get an offer of a job or a training place.
• £260m new money for training and subsidies, targeted to get the skills and/or
experience needed in sectors with strong future demand.
• £250m extra this year to enable 16- to 17-year-olds to stay in education.
£400m in next two years.
• Main capital allowance rate doubled to 40% to encourage firms to bring forward
• £750m investment fund to provide financial support to emerging technologies
and regionally important sectors.
• Enhanced tax relief to support investment of £50bn this year, including £10bn
to support the communications sector and extend the broadband network.
• Incentives to encourage smaller North Sea oil fields to be brought into
• Car scrapping scheme offers £2,000 discount on new cars when vehicles over
10 years old are traded in.
• Carbon budget commits UK to reduce emissions by 35% by 2020.
• £435m extra support for energy efficiency measures for homes, businesses and
• £525m new support for offshore wind power projects, intended to provide enough
electricity for 3.5m households.
• £405m new funding for low-carbon technology projects.
• Most energy-efficient new power stations using combined heat and power (CHP)
technology to be exempt from climate change levy.
Budget 2009: at a
glance, G, 22.4.2009,
Budget 2009: Alistair Darling's great financial squeeze on the
• Rich targeted by budget with 50% tax rate for those on over £150,000
• Restrictions on spending to be tighter than Thatcher era
• Debt to reach 80% of GDP – highest level in peacetime
Wednesday 22 April 2009
Larry Elliott, Patrick Wintour and Heather Stewart in Washington
Alistair Darling attempted to lay down battle lines for next year's general
election with a £7bn squeeze on the rich followed by a brutal freeze on public
spending in the next parliament.
Admitting that the worst year for economic growth since 1945 would create a
£175bn hole in the public finances this year, the chancellor broke Labour's 2005
manifesto pledge not to raise income tax by lifting the top rate for those
earning more than £150,000 to 50% from next April. The "soak the rich" theme
also included the abolition of personal allowances for those earning more than
£100,000 a year and the phasing out of higher-rate pension relief for earners of
more than £150,000.
Tax experts said the 50% rate, together with the loss of the personal allowance,
would cost someone earning £150,000 a year £200 a month.
But while Darling brought forward spending as part of a £5bn boost to the
economy this year, saying it was impossible for governments to cut their way
out of recession, he laid out future plans for public spending more severe than
under Margaret Thatcher's governments in the 1980s.
Current spending on the running costs of the state would grow by just 0.7% a
year from 2011-12 but deep cuts in investment in infrastructure projects will
mean zero growth in total spending from 2013. With the national debt doubling,
to 80% of GDP by 2013, the government will be paying £43bn a year in interest
payments – more than the current schools budget.
Darling said extra spending on tackling youth unemployment, boosting
housebuilding, investing in key sectors of the economy and providing help for
pensioner savers reflected the difference between Labour and the Conservatives.
"Everything we have done - whether supporting families now, maintaining
investment in our public services and putting the nation's finances on a
sustainable path - is based on our values of fairness and opportunity," he
said. "Even in this time of global economic difficulty, we are determined to
continue building a fairer society."
Measures aimed at easing the pain of the recession and reviving the economy
included £2.5bn to keep young unemployed people off the dole, help for
pensioners, a scheme to encorage people to buy new cars and £1bn of investment
in combating climate change.
But on a day that saw unemployment rise to its highest level since Labour came
to power in 1997, David Cameron said the government had lost any claim to
economic competence."Everyone can see what an utter mess this Labour
government and this Labour prime minister have made of the British economy.
The fastest rise in unemployment in our history. The worst recession since the
second world war. And the worst peacetime public finances ever known," he said,
adding that the government was planning to borrow more in the next two years -
£348bn - than every administration in the past 300 years.
George Osborne, the shadow chancellor, signalled that if any tax rises would be
reversed by a future Tory government it would be the 0.5% increase in national
insurance. The opposition is also intent on slowing the government's planned
rate in growth of current public spending in 2010 of 1.7% but Osborne gave no
details of what the Conservatives would cut department by department, or what
would happen after 2010.
The Tories acknowledged that Labour has announced a combined freeze on public
spending by the middle of the next parliament, saying: "It is another
little-noticed political trap they have laid for us." If the Conservatives
propose tighter current spending, there will be cuts in real terms.
A Tory source said: "Brown, throughout the 1980s, said that cutting capital
spending when the public finances are a mess is precisely what shouldn't
happen. Now he's doing it."
Darling said low interest rates, the budget stimulus, a weaker pound and lower
inflation would kickstart the economy late this year, and extra spending on
hi-tech industries would provide a platform for long-term recovery.
But Treasury forecasts showing that the economy will snap back from a 3.5% drop
in growth this year to expand by 1.25% in 2010 and 3%-plus in each of the three
following years was greeted with scepticism by the City.
Sterling fell by 1.5% and the gilts market was jittery at the prospect of high
levels of government debt for years to come.
Roger Bootle, economic adviser to Deloitte, said it could be 30 or 40 years
before the level of state debt returned to its pre-recession level of 40% of
Darling's optimism was also questioned by the International Monetary Fund which
predicted the UK would remain trapped in recession well into next year. The IMF
believes that with crashing house prices and plunging shares knocking up to
£1trn off the wealth of Britain's families, they will still be tightening their
belts long after the banking crisis is over.
It forecast a 4.1% decline in GDP this year, followed by another fall, of 0.4%,
Budget 2009: Alistair Darling's
great financial squeeze on the rich, G, 22.4.2009,