The BBC discusses whether the UK can go bust

Where has the Today programme been for the last year? This morning I awoke to hear them asking someone if the UK government was borrowing too much and if it could find it difficult to raise all the money, as if this were a new question. The interviewer then rushed to retail the government’s misleading figures, reassuring us that the UK is lightly borrowed. That was scarcely true even before the government bought one of the largest banks in the world. You needed to add PFI, PPP, Northern Rock and Network Rail into the figures for starters. Since buying RBS the opposite is true. The UK is now a large bank with a medium sized government attached. Did they not hear me warn in Parliament that RBS was too big for the state to handle easily? Do they not follow the arguments about how much of the £2 trillion we need to add to the stock of UK government borrowing annd liability?

When they started buying RBS shares I offered a cheaper and better way of keeping it going and forcing it to cut risk and slim down. I urged them to protect the taxpayer and not buy shares with taxpayers money. I pointed out that it could lose them a year’s defence budget quite easily. So far RBS has lost £24 billion since the government bought shares. We now learn that it could lose much of the next £19.5 billion taxpayers are being asked to tip in. In other words the official view is that RBS is now likely to lose us a year’s defence budget, and could go on to do worse than that.

It would not be not responsible of the BBC to raise the issue of national financial overstretch in a sensational way. They do, however, have a duty to report what people in the debt markets think, as they control our futures. They should do a better job balancing the voices from Parliament, where some of us have been warning for months that the government is taking too much financial risk and overcommitting the taxpayer. That was why I voted both against the VAT reduction, and against the banking support Money Resolution. We cannot afford either easily. Neither provide taxpayers with value for money.There are better and much cheaper ways of getting us out of this hole.

This is blind folly. No-one sensible predicts national bankruptcy, but any sensible analyst would conclude the UK is trying to borrow too much. You cannot cure a crisis of overborrwing by borrowing more. You cannot solve the bad debt problem by simply transferring it to the long suffering taxpayer.

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27 Comments

  1. alan jutson
    Posted February 28, 2009 at 8:48 am | Permalink

    John

    Agree with you and your points entirely, but the only defence if you can call it that, is total confusion.

    We have had so many Government statements and headlines about more and more borrowing and more and more rescue plans, that most people are now not aware of the grand total, as it is rarely ever mentioned (other than on this blog).

    I said manthy months ago that when eventually you get into Government , but preferably before, just in case you do not (unthinkable I know, but you never know) you (the conservative Party) should do a balance sheet showing all of Government debt racked up by this Government against the balance sheet of when you left office in 1997 as a comparison.

    All debt should be included in both cases. PFI, Bank bail outs, Gold reserves, etc.

    Reply I did so in the Economic POlicy Review and have updated it here since

    In addition list all of the new Taxes introduced by this Government during that same period.

    If enough publicity was given to this list then perhaps just perhaps the penny may drop.

    This should then at least concentrate the minds

    • THE ESSEX BOYS
      Posted February 28, 2009 at 6:30 pm | Permalink

      We agree that this is a very clear way that voters would readily understand – 1997 v 2009

      Returning to the UK in 1997 this particular writer was surprised that the UK finances were in such good shape after a severe recession (here and overseas) and given the apparent thirst to throw out the Conservatives.
      I wrote to William Hague (and subsequently to Michael Howard several times) to suggest he point that out in no uncertain trems but the Blair spin steamroller was in full throttle.
      Since then no Leader of the Opposition has fought his corner to defend 1992 -97 but in the current climate we agree that a clear concise people-friendly chart of headline figures, as suggested here by Alan, would be extremely effective.

    • brian kelly
      Posted February 28, 2009 at 7:02 pm | Permalink

      One of the many truly horrific nightmares Gordon Brown has is the day the of the opening, and forensic examination, of the books by [we sincerely hope] a conservative party after the next general election.

  2. Richard
    Posted February 28, 2009 at 9:19 am | Permalink

    ‘No-one sensible predicts national bankruptcy’

    I don’t remember anyone sensible predicting bankruptcy for Iceland either.

    This £600billon indemnity for toxic debt frightens me, if the recession bites deeper than the Treasury forecast (that could never happen could it?) the taxpayer’s going to get hit badly. I really can’t see where the money is going to come from to pay for it.

    Reply: No-one sensibly wants to help bring on such a catastrophe. Some of have been warning about the need to be much more careful with debt and the currency to make sure it could never happen.

    • jim
      Posted March 1, 2009 at 1:23 pm | Permalink

      But it has already happened, that is why the BoE is printing money. If they could borrow it they would, but they can’t. I don’t think any of us want to face this issue, but we have to be realistic. Britain is already bankrupt, when foreign debt holders put two and two together, we are going to go the route of Iceland. I’m sure you’ve noticed that Germany has had two failed bund auctions in recent weeks. Who would lend to Brown?

  3. Brian Tomkinson
    Posted February 28, 2009 at 9:28 am | Permalink

    I keep saying it but every day Brown is allowed to stay in power the further impoverished we all become. We can’t afford to wait until June next year for an election.
    What do you think about the suggestion from Ros Altmann in today’s Telegraph that the Treasury is keen to get its hands on the Royal Mail pension scheme so that it can boost its own cash flow now with the billions of pounds of assets in the scheme and leave a future government to find the funds to pay the employees’ pensions in coming decades? No wonder they are so keen on this part privatisation. On this basis I hope that you and your colleagues will oppose what would amount to a Ponzi scheme.

    • THE ESSEX BOYS
      Posted February 28, 2009 at 6:39 pm | Permalink

      Brian – we had exactly the same thought!

      Ros Altman’s a terrific lady and, we’ve always assumed, a woman scorned by Labour having been a Brown adviser originally and seeing just what unfairness and ineptitude went oninside the tent!

      Since then she has fought a bonny fight for disenfranchised pensioners and her views should always be heeded.

  4. APL
    Posted February 28, 2009 at 10:03 am | Permalink

    On 27 Feb @ 9:40 am freddyon wrote:

    “It keeps coming back to: what are you going to do about the BBC ?”

    He is right.

    What is the next Tory government going to do about the BBC?

    Reply: Still being discussed. Some favour radical options.

    • Posted February 28, 2009 at 6:14 pm | Permalink

      Am I unkind to favour the lampost option? Perhaps.

  5. Jonathan Cook
    Posted February 28, 2009 at 10:31 am | Permalink

    It is a shame that BBC news is increasingly alien towards reality.

    The only solution is to shop around and build a balanced view of the world from multiple sources.

    Clearly that means that the BBC are letting the public down. They should provide a single one-stop shop of unbiased information.

  6. Lola
    Posted February 28, 2009 at 10:34 am | Permalink

    Mr Redwood said “where some of us have been warning for months that the government is taking too much financial risk and overcommitting the taxpayer.” Some of us have been warning about this for years.

    And although I may not be ‘sensible’ in predicting national bankruptcy, it rather depends on what you mean by bankruptcy as applied to a nation. If our national currency descends to such a low level on international comparisons that no-one will buy Sterling denominated government securities it could be held that foreign investors have no confidence in our ability to service or repay capital. They may ask us to tranfer locally based assets to them, property, businesses, our remianing gold stocks. If then we are forced into the arms of the IMF we are in my view technically bankrupt.

  7. Derek
    Posted February 28, 2009 at 10:48 am | Permalink

    “No-one sensible predicts national bankruptcy”

    I can remember people saying similar things a few years back when I suggested house prices were a bubble that might implode.

  8. THE ESSEX BOYS
    Posted February 28, 2009 at 10:56 am | Permalink

    We participated in some interesting research amongst middle-market voters this week run by our friends at ESSEX VOTERS VOICE.

    The objective was to gauge how the public is coping and adapting to the current economic climate. Their broad findings bode rather unfavourably for an early recovery from recession.

    Without exception people in all categories – those who have lost their jobs, those fearful of that and even those feeling secure – have changed their shopping, buying and social habits markedly. Income and savings are being put aside for ‘must pay’ items – housing, utilities, food and motoring costs – often in cash tucked safely ‘under the mattress’ it emerged – but strangely many previous regular purchases and treats are not being missed at all.
    Many people (and certainly a high enough percentage to influence the economy) are ‘living off stock’, not buying new clothes and definitely not considering a new car, a home move or a fancy’ holiday. Most are not looking for a bank loan.

    Many see this as a personal/family challenge and the older ones compare it to wartime or early-50s rationing. The young feel it’s rather innovative and ‘trendy’ even. Most feel this is one positive thing to has emerged from the current crisis and that these newfound habits are likely to become part of their lives and as ‘good training for children’ and grandchildren.

    The other feeling evident was ‘relief’ that bankers, financiers and ‘fat cats’ were being brought down to size and that future society might become a fairer place.

    The research was conducted across 10 groups of up to 12 people randomly selected and, if it’s a general consumer trend as we suspect from personal observation, it may take many years for the economy as we knew it to return.
    More likely is that it could change forever with the realisation that folk need fewer new belongings and as a consequence the world economy needs far less manufacturing capacity.

    “Old does just as well” as one lady put it.

    “We had a lovely evening at home with a Tesco gourmet meal and a Sky movie – we’ll be doing that quite often now, perhaps with friends around” said a young couple.

    “Every cloud has a silver lining” was the positive summary that emerged more often than any other!

    All this tends to confirm our belief and that our main problem is likely to be lack of consumer demand rather than lack of credit and lending. As we blogged here recently:
    “IT’S LACK OF SALES STUPID!”

    The thought that occurs to us is that we should be gearing the country’s overheads and cost structure for a diminished consumer society where ‘quality’ – of life, of performance and of goods, rather than volume – is the criterion and where the absence of ‘economic growth’ does not throw us into panic and confusion.

    We must liken ourselves to a business that has seen its core market decline and adjust our overheads and strategy accordingly. Immediately stop financing those things that ‘would be nice’ in better times and concentrate on necessities.
    That gives enormous scope and we must hear an end to the castigating of ‘cuts in services’ and start applauding ‘cuts in waste’ in every aspect of our lives – starting with HM Government please!

  9. Tony Makara
    Posted February 28, 2009 at 11:21 am | Permalink

    What we are witnessing is a government in utter panic, stumbling from one ad hoc course of action to the next, no forward planning beyond trying to create a spurt of debt-led growth before May 2010. Equally disappointing as the governments listing leadership, was the way in which the Conservative party also panicked and chose to back the bail-out, giving the government a green light to heap debt on the taxpayer.

    As for the BBC, one often senses that their coverage is aimed at creating a climate of thought, at shaping public opinion, and making the ground fertile for government policy. Painting a picture of absolute economic doom and gloom makes it easier for the prime minister and the chancellor to demand more sacrifices from the British public.

  10. Posted February 28, 2009 at 11:34 am | Permalink

    A thought provoking article as usual. Perhaps now is the time for Scotland go independent and carry across the £45bn burden that the UK Government has ploughed into the troubled RBS bank?

    A light hearted suggestion…but one that must have the SNP thinking hard.

  11. Posted February 28, 2009 at 11:42 am | Permalink

    One of the most succinct and accurate statements of the situation I have seen in the media/web. Your description of a big bust bank with a rather smaller government subsidiary to provide an income stream to defray some of its basic running costs is a good one. But then I recall 1947-1949 when I was always hungry, clothing was equally short, consumer goods largely impossible to source and in the winter I was cold, indeed very cold. But we are in a worse financial position now than then, as part of a bust Empire with a London subsidiary. I have seen how bad it can get, and it could be a lot worse this time around.

  12. Posted February 28, 2009 at 12:23 pm | Permalink

    If you earnd £1 per second, how long would it take you to pay off the National Debt?

    A million seconds is 12 days.
    A billion seconds is 31 years.
    A trillion seconds is 31,688 years.

  13. Posted February 28, 2009 at 12:39 pm | Permalink

    I despair at the media grip on affairs. Brown spouting rubbish about Goodwin’s pension and the billions pledged we don’t even have, for another banking bailout, goes unnoticed. Failure after failure is trumpeted as success and the idiots in the MSM not only swallow it but regurgitate the lies and obsfucation as some wonderful bit of Government. Only when these people face the harsh realities to come might there be some awakening. I’m not holding my breath.

  14. Peter
    Posted February 28, 2009 at 1:38 pm | Permalink

    Did you hear the Prime Minister addressing the Labour Policy Conference in Bristol? He set out what each of the nationalized banks will be forced(?) directed(?) to lend to. It sounds to me like in the dying days of this government we are creeping towards a command and control economy.

  15. Adam Collyer
    Posted February 28, 2009 at 2:05 pm | Permalink

    We’re now seeing the head of the Audit Commission warning that “very substantial reductions in public spending” will soon be necessary, and that the tax rises promised by the government won’t be enough. In fact he says that the cuts will need to be substantially larger than £30 billion. He even raised the spectre of the UK not being able to find enough borrowers to fund the deficit, though he said this was an unlikely (but possible) scenario. Presumably Mr Brown won’t listen to him either…

    • THE ESSEX BOYS
      Posted February 28, 2009 at 6:47 pm | Permalink

      As we mentioned last week..time to dig out and dust off The James Report?

  16. RD
    Posted February 28, 2009 at 5:59 pm | Permalink

    Did not see the comments before I prepared this comment, therefore apols to anyone who has mentioned the same.

    John,

    I wish the media in this country could take a more global outlook enabling us to hold a mirror up to ourselves. I have recently had conversations with two friends in Canada. The first pointed out – cynically – that their Finance Minister and Governor of the Bank of Canada were recently at a G6 meeting proclaiming the virtues of their economy and regulatory regime. I then replied that our PM had been putting himself on a pedestal, saying that where he led with actions in reaction to the crises, others were following. (You know, the “saviour of the world” stuff he was barking on about a few weeks ago.) But, checking in the Globe and Mail, the pair were indeed praising their country’s status and citing evidence: less exposure to sub-prime; less unemployment; decent interest rates; a better regulatory model.

    Incidentally, the BoC has been split from the regulator OSFI for years there. I believe a split from the central bank is neither the answer nor the problem; what is needed is effective regulation and while the FSA concentrated on the detail with an almost unfathomable rule book – something Lola has drawn accurate attention to, already – the bigger picture of monitoring capital adequacy and strategy was lost.

    In the early hours of this morning, I spoke to friend no. 2 and heard something very alarming. For a country with more optimism from its powers, I heard that people, in Toronto at least, are wondering if they will see an end to this global recession/depression in their lifetimes. This is not something I am hearing from people in the UK and I have to wonder if we are tightening our belts, but still living in cloud cuckoo-land and hoping for the best, continuing to believe in short-termism.

    Perhaps this thought in Canada is hot on the heels of an interview on 23/2 in the Globe and Mail with a Harvard economist Niall Ferguson, who paints a very depressing picture in the article “There will be blood”. Rightly, he says that with a global recession, Canada will be hit. He asserts that trading partners of the US will be more hit than the US; that there will be unrest within the EU, but the cost of exit will prohibit countries leaving it. (Germany was cited as a potential point of conflict because it still has a property-rental culture above the “Englishman’s home is his castle” mentality that we have here and elsewhere in the EU.) Interestingly, if looking for a decent model in Europe, Ferguson suggests Spain. I don’t think the UK had one mention in this interview, which puts us in perspective on the global stage.

    He also suggests unrest to the point of civil war…

    If anyone else can cope with the slow-load of the G&M site (maybe it’s just my old PC), you can find the article here:
    http://www.theglobeandmail.com/servlet/story/RTGAM.20090223.wferguson0223/BNStory/crashandrecovery/home

    It makes for depressing reading, but we are in a global economy that is crashing fast so I believe we need to learn more from a global perspective. While Rome burned, Nero fiddled and many of us are aware of the media spin in this country, but put in a global context, when we can find it, it’s all the more frightening.

    My apologies for the long comment, John. But I think this needs to be said, lest we become too insular in our outlook, focusing on ex-RBS exec pensions, for example. The global economy has led to a lot of our domestic industries and services taken over or “won” by tendering for companies elsewhere. That is another risk we have to contend with and sadly, it’s another risk that will materialise in terms of loss, service delivery or financial.

    As a country, may we please find our true being, culture and spine to fight this after so many years of Labour’s ego-mania and profligacy, which has contributed to this mess, perhaps even been party to sourcing it and some may say “cause” it. It’s time to get real and face the facts.

  17. mad tony
    Posted February 28, 2009 at 8:07 pm | Permalink

    In wartime, eg Falklands the expression “if they are to be believed” is used by the BBC, Perhaps, they need to put government figurse in context, because clearly we cannot believe politicians, bankers, hedge fund managers and journalists. Also to what extent are interviewees allowed to rant incorrect figures?

  18. Posted March 1, 2009 at 3:55 am | Permalink

    Lots of sensible people are very worried about bankruptcy of the UK, as it happens John.

    Your usually astute voice is making too light of the issue, but I suppose it depends how you define bankruptcy.

    If bankruptcy means “nobody has any money left” then that cant really happen, because we can always print more. By this argument, Zimbabwe are still fine. They’ve got loads of their own money. Mountains of the stuff. They need it to buy the smallest thing. (Where there are even small things available to buy.)

    If bankruptcy means that we owe more than we can hope to earn, that can’t happen either. If you are prepared to recruit enough generations into the repayment then you can borrow against future citizen’s hard work forever.

    If bankruptcy means that nobody will lend us money any more by buying our gilts and that the government is then forced to print money and buy its own gilts via puppet banks and other smoke-and-mirror methods, just in order to fund its own institutions, I’d call that bankrupt.

    But they wouldn’t do that, surely? Fund government operations directly with printed money? In order to do that they’d need to change old laws which required them to publish the amount they were “printing” (or “easing” if you prefer). They’d also need to relax the rules around how gilts are auctioned. Plus they’d have to hide the banks accumulation of gilts buy ‘buying them back’ so that the banks quantity of government gilts would appear static. That sort of ‘money go round’ must surely be science-fiction. It couldn’t happen here. I feel better now I’ve debunked such… uh … impossible nonsense.

    Reply: far from making light of it, I have been consistently warning the government that they are taking far too much financial risk and asking them to back off before things get even worse. Please read what I said carefully – it is not as you think. I also need to speak responsibly in a time of great danger.

    • Amanda
      Posted March 1, 2009 at 10:55 am | Permalink

      I have now got to the stage when I am waking during the night worrying about the country’s finanical situation – I surely cannot be alone. It’s like being tied to a railwaytrack unable to move with the train coming full pelt. Is there no way we can call a vote of no confidence in this Government? Is there no democratic way to rid ourselves of their incompetence? Everything they do makes matters worse.

      The only light to this dark cloud is the reeducation of the ‘lost generation’ of Labour educated children as they have to cope with the realities of socialism. Hopefully, this will be a life lesson they will never forget.

  19. mike stallard
    Posted March 1, 2009 at 8:17 am | Permalink

    If you live in No 10 safely cocooned from parliament and the media, behind the wall of the BBC, then you are free to indulge in really slovenly thinking. You can make up figures. You can order things that either you have no intention of carrying through or things that you really do not understand.
    The danger comes when you come to believe your own lies.
    And that leaves you open to really big mistakes, like borrowing madly and running your credit rating into the ground.
    Queensland did this recently and was downgraded from triple A. The government immediately resigned and called a fresh election.
    Allow me to remind you that what we need desperately is a vast cut in taxes, a vast cut in State interference and therefore State employees, some sensible encouragement of earning money abroad and, as you so rightly say, some way of getting the banks to reform themselves professionally.
    I do not think that our 19th century legacy is going to prevent our going bust otherwise.
    But then, I have often been wrong before.

  20. april ryan
    Posted March 1, 2009 at 4:39 pm | Permalink

    John you talk a lot of sense but I have to say I am feeling as let down by the Conservatives as I am by this profligate government.
    The borrowing we are taking on is mortgaging the country to the hilt. Not just for the term of this government but for several governmental terms to come. Whoever takes over this level of debt will have their hands completely tied and will be unable to steer any other course other than upping taxes to pay off this mega debt (and that, of course, is if the country does not go bankrupt in the meantime.)
    This is unconstitutional and I do not believe that Gordon has either a mandate to borrow on this level or the backing of the people of this country. For goodness sake Conservatives put up a fight and make yourselves a credible opposition.

  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, He graduated from Magdalen College Oxford, has a DPhil and is a fellow of All Souls College. A businessman by background, he has been a director of NM Rothschild merchant bank and chairman of a quoted industrial PLC.

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