Loads of money

 

  Yesterday the European Central Bank grabbed the headlines by lending Euro 529,000,000,000 to 800 European commercial banks for three years.  This was a top up to the Euro 489,000,000,000 they had lent for three years one month last December for 1% per annum to 523 banks. That makes a tidy One Trillion Euros of 3 year lending, all repayable January-February 2015.

      That was not the only money they lent yesterday, They also lent Euro 134 billion overnight at 1%, Euro 29 billion for 7 days at 0.26%,  and Euro 6.5 billion for 3 months.  Commercial banks also borrowed from the ECB  $3.5 billion of 7 day money and $14.5 billion of 84 day money. The European Central Bank’s website also declares a stock of Euro 65 billion of purchased covered bonds at the same date.

          What does this tell us? It confirms that the normal  interbank market in Europe is still well and truly frozen. Banks are unable to borrow the sums they need from each other. It also tells us the banks see profitable opportunities to make some money on the back of very cheap three year loans. Even allowing for low official interest rates, and low returns on German government bonds, there is still a turn to be made barring capital losses.

            This liquidity is helping drive down the costs of Spanish and Italian official borrowing, as they hoped it would. It has not had the same benign impact on Greece or Portugal. It does nothing directly to curb the large deficits, grow the economies or solve the tax problem in the most damaged  southern states. It does buy them time, it does keep the interest charges down in the countries where some of the cash is used to drive government bond prices up and interest rates down as a result.  The commercial banks could even consider lending more to the private sector for suitable projects, which could give the economies affected a modest boost.

                 The question is what do they use the time for that they are buying with this large injection of liquidity? They need to be repairing and sorting out the banks, so they can set up a working interbank market again. They need to be developing growth policies which work. The danger of the current system is that it means weak banks are propping up weak countries which are propping up weak banks. The Central Bank has taken various items as collateral for its loans. They need to mend the underlying economies to make sure the Central Bank can get its money back on time, and to ensure the collateral it has taken has full value.

               If they do not restore health to bank and state finances, and growth to economies, this becomes a fanciful money go round which will go wrong.

This entry was posted in Uncategorized. Bookmark the permalink. Both comments and trackbacks are currently closed.

73 Comments

  1. lifelogic
    Posted March 1, 2012 at 6:47 am | Permalink

    As you correctly say “If they do not restore health to bank and state finances, and growth to economies, this becomes a fanciful money go round which will go wrong.”

    But they do not seem to be doing the right things to restore growth at all, so why should growth return? Still no real lending to the actual small businesses that need it and could grow quickly. They still have their hands tied behind their back with government red tape and absurd employment and other laws.

    Even the prospect of even more real socialism and 75% income tax rates in France – this is hardly likely to help confidence.

    • lifelogic
      Posted March 1, 2012 at 7:58 am | Permalink

      I see reported today that taxpayers have spent £98m on two tax collection projects that failed to bring in any extra money. The new systems at HM Revenue and Customs (HMRC) were expected to bring in £743m by the last financial year.
      But a public spending watchdog found they had not delivered “any additional benefits”- and doubtless much harm and inconvenience to those targeted.

      No surprise there then, just the usual government efficiency. If only the £98m could have been lend to business instead of trying to mug them. I wonder how the analysis of the “benefits” of the 50%+NI rate are coming along. I cannot see how it can take more than half an hour, a pencil and an envelope to analyse and see that it is clearly mad and counter productive. Why is it taking so long Osbourne?

      • Disaffected
        Posted March 1, 2012 at 9:19 am | Permalink

        He does not intend to do anything, he is hoping that by some magic it will correct itself. John has long proposed the selling off of Lloyds and RBS to start lending to small businesses and many other suggestions. Cameron and Osborne like the Kudos, but not the responsibility and they do not have any experience in the work place. After al they do not need to work, save or build a pension.

        Pensioners wake up. Osborne is robbing you through QE. THe BoE response to the select committee was woeful yesterday. They appear absent minded as to what they done in the good times to prevent QE occurring or to protect savers, pensioners and the prudent. When all the workers and savers are fleeced who will they turn to for tax to continue their welfare state?? Two years in office, no plan, no strategy. A lot of hot air an bluster. Taxes keep rising to meet increased spending. When will they learn to stop spending and to tax less??

        • lifelogic
          Posted March 1, 2012 at 11:52 am | Permalink

          When will they learn to stop spending and to tax less?

          Well as the politicians see unable and unwilling to control expenditure then it seem it will go on until they finally kill the private sector tax base fully and are unable to borrow anymore.

          Until then “tax, borrow and tip down the drain” seems to set to continue.

          • Disaffected
            Posted March 1, 2012 at 5:25 pm | Permalink

            When these people (MPs, Lefty civil servants etc) talk about taxation it is as if they are entitled to other people’s money and it is okay. It is not. Taxation should be a necessary evil to pay for the minimum amount of public services, it is not, and should not be seen as a right to take other people’s money, so people can make it a life choice not to work and get a good living on the state on the backs of others. Why does the socialist Coalition think it is right to take more than the person earns??? The 300,000 need to live in the Isle of Man, Gibraltar or another tax haven, the socialists are robbing you. WHat the socialist Coalition does not waste on welfare it throws down the EU socialist drain of welfare and Eurocrat greed.

      • uanime5
        Posted March 1, 2012 at 2:12 pm | Permalink

        According to the HMRC the 50% tax rates generates about £5 billion per year, and will continue to do so unless tax avoidance doubles to £10 billion per year or the 300,000 people in the 50% tax rate leave the country.

        • lojolondon
          Posted March 1, 2012 at 3:05 pm | Permalink

          No, that was according to ‘Crash Gordon’ and Balls. The true facts have not been extrapolated on a spreadsheet, they are the facts of the 2011 tax collections, and the result is negative, as everyone knew they would be, but the 50% was instituted for political reasons, to draw a line between Liebour and the Tories.

          Now when the Tories scrap this foolish tax, Liebour can always point to collusion ‘they are saving their mates some money and nevermind about the poor’.

          Cheap, and predictable, innit?

          • Disaffected
            Posted March 1, 2012 at 5:28 pm | Permalink

            This is where the MPs live in their own little world because we are not interested in the view of the likes of Brown, Balls, Clegg, Cable and Huhne.

        • zorro
          Posted March 1, 2012 at 3:09 pm | Permalink

          Where is the source for this assertion? What did last month’s tax take figures suggest?

          zorro

          • zorro
            Posted March 1, 2012 at 3:10 pm | Permalink

            Anyway, don’t worry Lin Homer is in charge at HMRC now, what can go wrong?

            zorro

        • lifelogic
          Posted March 1, 2012 at 9:10 pm | Permalink

          Clearly only a small proportion (not all) of the 300,000 who pay 50% need to leave with their money and perhaps their companies or just to work a little less in order for the 50% + NI to be counter productive. I have no doubt that it is. Anyway it clearly sends a not welcome here message out. As indeed does does the absurd retrospective changes in tax laws used against Barclays Bank recently for similar absurd and rather pathetic & counter productive political reasons.

    • uanime5
      Posted March 1, 2012 at 2:09 pm | Permalink

      What exactly is this red tape that’s harming small businesses? Has a survey been conducted to determine what help small businesses need?

      Given that the wealthy in France are calling for the 75% tax rate don’t expect it to harm the French economy.

      • zorro
        Posted March 1, 2012 at 3:13 pm | Permalink

        Who are the wealthy calling for a 75% tax rate?

        zorro

        • lifelogic
          Posted March 1, 2012 at 9:12 pm | Permalink

          Presumably the ones who have other arrangements so as not to have to pay it themselves.

      • lola
        Posted March 1, 2012 at 4:45 pm | Permalink

        Tell you what, come and work in my small business fior a month….I’ll show you red tape on an Olympian scale.

        • lifelogic
          Posted March 2, 2012 at 9:45 pm | Permalink

          Indeed red tap is everywhere killing and exporting jobs all over the place.

      • Bob
        Posted March 1, 2012 at 6:49 pm | Permalink

        uanime5
        Do you have any commercial experience?

      • libertarian
        Posted March 2, 2012 at 4:04 pm | Permalink

        Yes,

        Surveys have been conducted on a monthly basis by British Chambers of Commerce and Federation of Small Business. The survey results are unanimous for all areas of UK and all business sectors. Taxes, business rates and energy prices ( caused by taxes) are the biggest drain on starting, running and expanding businesses. EU working directives, onerous regulation and biased employment laws are second level of issue. The survey results have been consistent.

        You very silly assertion about wealthy French people calling for a 75% tax rate is complete total and utter load of rubbish. The French Socialist party have called for a 75% rate, no one else.

    • Disaffected
      Posted March 1, 2012 at 5:13 pm | Permalink

      It is 62% on income tax (including NI) here already and, taking other forms of taxation into consideration, increasing retirement etc (to pay for the welfare state), then the UK is taxing at the same rate as France propose already.

  2. Gary
    Posted March 1, 2012 at 7:30 am | Permalink

    This is absolute madness. We are sacrificing society for the banks. The dental banks will never get their money back, they are assuming “assets” onto their books that cannot otherwise be sold. The banks are rigging LIBOR, they have fantasy bookkeeping, this is an enormous shambles. Not a single banker has been put on trial.

    “Sometimes the law
    defends plunder and
    participates in it.
    Sometimes the law even
    places the whole
    apparatus of judges,
    police, prisons and
    gendarmes at the service
    of the plunderers, and
    treats the victim, when he
    defends himself, as a
    criminal…But often the
    masses are plundered and
    do not even know it.”
    Frédéric Bastiat

    • Disaffected
      Posted March 1, 2012 at 9:12 am | Permalink

      They are in Iceland.

      • lojolondon
        Posted March 1, 2012 at 3:06 pm | Permalink

        AHA, Iceland – now THAT’s a democracy!

        • Disaffected
          Posted March 1, 2012 at 5:17 pm | Permalink

          At least they would not be held to ransom by the EU, their bankers etc.

    • zorro
      Posted March 1, 2012 at 3:17 pm | Permalink

      Change ‘we’ for ‘the politicians owned by the private banking interests’.

      zorro

    • libertarian
      Posted March 2, 2012 at 4:09 pm | Permalink

      Gary

      When you say banks are rigging LIBOR , exactly what do you mean?

      You do know that LIBOR is the average interest rate that leading banks in London charge when lending to other banks. Banks borrow money for one day, one month, two months, six months, one year, etc., and they pay interest to their lenders based on certain rates. The Libor figure is an average of these rates. Many financial institutions, mortgage lenders and credit card agencies track the rate, which is produced daily at 11 a.m. to fix their own interest rates which are typically higher than the Libor rate.

  3. Gary
    Posted March 1, 2012 at 7:31 am | Permalink

    Dental = central

    The joy of predictive text

    • Bob
      Posted March 1, 2012 at 6:53 pm | Permalink

      @Gary
      “Dental = central”

      I can think of another word that rhymes with dental, but it wouldn’t be pc.

  4. Mike Stallard
    Posted March 1, 2012 at 7:41 am | Permalink

    Thank you for this very enlightening article.
    Our local MP (Steve Barclay) has started a blog. I thought, of course, that he was bone idle, totally wet and utterly useless – but what did I know? He has been fantastic! Yesterday, he says, he got onto the front page of the Guardian because he dared to question (along with others) the wind farm policy!
    The same goes for this blog: it puts ordinary voters in touch with reality.
    Thank you. Very useful.

    • APL
      Posted March 1, 2012 at 6:52 pm | Permalink

      Mike Stallard: “he says, he got onto the front page of the Guardian because he dared to question (along with others) the wind farm policy!”

      How did he vote on the climate change bill?

  5. figurewizard
    Posted March 1, 2012 at 7:53 am | Permalink

    European banks are already surrounded by loads of money though. Distressed assets are being targeted by hedge funds, while insurers around the world are snapping up higher quality long term mortgages and other loans. Wells Fargo have already made some $7 billions’ worth of of such loans from Irish banks, Capital One is paying $9 billion for ING direct while KKR is expanding its London staff of decision makers from two to eight specifically to secure similar deals.

    Banks and investment houses from Japan and China are also circling adding to the pile of cash currently hunting for deals, which is now in the trillions of dollars. With finance of this scale on offer the question arises; why is it that these ECB loans are considered to be necessary?

    • Bob
      Posted March 1, 2012 at 7:41 pm | Permalink

      @figurewizard
      “…why is it that these ECB loans are considered to be necessary?”
      +++
      Could it be because the institutions doing the borrowing are also looking for deals but lack liquidity because their cash is currently tied up in toxic junk, and they also know that their counterparts are holding unsaleable assets which is why they will not lend money to each other. But they still need to keep trading and the ECB “injection” will keep the bonuses pouring in for a couple more years which should sort them out with a nice little nest egg and a comfortable pad in Rio where they can sit it out until the heat is off in Euroland.

      I’ve got a feeling that on payment maturity date, poor old Mugggins the taxpayer will find himself the proud owner of a portfolio of paper which will fetch about 30p a tonne.

      I think I’ll cash in my savings and convert into a hard currency, like Brazilian Reals.

  6. Alan
    Posted March 1, 2012 at 8:00 am | Permalink

    I used to think of money as something you could use in order to buy things or to save so that you could buy things in the future. Events in the UK, the USA, and now in the Eurozone are making me realise that it is not something of fixed value as I had imagined, but as something whose value is changed to meet the needs of the economy (or the supposed needs of the economy, or maybe just the needs of the bankers). It retains its usefulness if you want to buy something, but its usefulness as a method of storing value is questionable.

    I think the euro was intended to be a store of value – one of the reasons I wanted the UK to adopt it – and maybe it will manage that, but my confidence is diminishing as they print more and more money. On the other hand the Bank of England has printed cash on a scale I find unbelievable, but is still confidently forecasting that inflation will fall, so perhaps the ECB can manage the same trick. We live in strange times where straightforward economics seems to be misleading; printing money does not cause inflation, devaluation is seen as beneficial, balancing your budget is foolish, low interest rates are a reason not to borrow, one of the most profitable investments is a yellow metal which has almost no industrial use.

    • zorro
      Posted March 1, 2012 at 3:24 pm | Permalink

      They are all printing money in one form or another (USA, UK, ECB) in a race to the bottom. We need to worry when the banks start using the new money in new multiple loans and the Central banks are unable to control the resultant inflationary effects of the delayed time bomb.

      zorro

  7. Antisthenes
    Posted March 1, 2012 at 8:25 am | Permalink

    Free market capitalism is truly dead. The inter bank lending market has seized up for a very good reason there is too much potential bad debt . So the market wants to correct the problem in the normal sensible way by forcing some banks to restructure and some to fail. In the short term it would be devastating for national economies and everyone would have to tighten their belts but in the end economies would be leaner, fitter and healthier. However governments do not want to let the market do what it is best at doing and have seized control of it and are manipulating it. Instead of allowing the market to correct the distortions in it they are now building in larger and many more distortions. We have all seen that past propping up failure has rarely been successful and there is every reason to believe that the same is going to happen now. You cannot buck the markets is as true now as it has ever been.

    • notjmk
      Posted March 1, 2012 at 9:13 am | Permalink

      At last, someone else recognises that if the markets were allowed to operate they would correct the present position. Yes there would be failures and inevitably pain, however governments are too timid to let that happen and eventually, we will pay the price.

    • Robert K
      Posted March 1, 2012 at 9:45 am | Permalink

      Absolutely

    • Richard
      Posted March 1, 2012 at 10:19 am | Permalink

      Antisithenes, I agree with all you say.
      It is natural for some businesses to fail. It is an indicator that an economy is operating properly.
      We had banks that had made many bad decisions and were failures.
      They should have been allowed to fail but sadly Mr Brown had a nationalising instinct.
      We should now cut our losses and sell them off as soon as possible.

      • Bob
        Posted March 1, 2012 at 7:53 pm | Permalink

        Better to sell off the BBC which undermines the nation at every turn.

      • APL
        Posted March 1, 2012 at 11:05 pm | Permalink

        Richard: “It is natural for some businesses to fail. ”

        And one of the reasons why the private sector is better than the public sector.

        The one is subject to ‘natural selection’ the other is protected and privileged.

        • lifelogic
          Posted March 3, 2012 at 9:36 pm | Permalink

          “The one is subject to ‘natural selection’ the other is protected and privileged.”

          Indeed one is natural selection and replicate what works the other is driven by largely self interested state employees – who do not give a dam if it works or not or even if anyone wants it or not – so long as they can get the politicians to give them the money to waste on it.

  8. alan jutson
    Posted March 1, 2012 at 8:37 am | Permalink

    Thanks for suggesting it all has become a paper money go round.

    I was begining to think I was the only one thinking the same.

    Seems to me just delaying the inevitable, meanwhile the banks can make a fortune out of lending this cheap money at high rates.

    Why would bankers want to lend money to mere mortals and bone fide businesses when they can just trade paper.

    Lending to business seems a low priority for Banks at the moment.

    Actually not even trading paper, just keyboard strokes.

    The ECB gets its money from !!!!!!

    Ah yes, thats the answer.

  9. Nick
    Posted March 1, 2012 at 9:28 am | Permalink

    Repeat after me. This is nothing to do with the banks.

    The ECB isn’t allowed to lend to governments. Governments have a debt problem. A very very big debt problem.

    People aren’t lending to governments.

    Banks aren’t lending to governments.

    The ECB isn’t allowed to lend to governments.

    So the ECB lends to banks. Banks then have all this cash and lend it to governments. Governments get their funding, in effect from the ECB. Banks take a cut, and make profits.

    It’s not in the spirit of the law, to quote the latest.

    It is regulatory arbitrage.

    It’s screwing the citizen.

    • Chris Bowley
      Posted March 1, 2012 at 11:45 am | Permalink

      Exactly. And replace ECB with BoE and you have the real rationale for QE. The banks are being bought off (difference at which they can borrow from the ECB/BoE v. yield on government bonds) at the expense of the tax payers with the deal arranged such that the tax payers won’t realise what is happening/feel the pain until too late.

    • Ralph Musgrave
      Posted March 1, 2012 at 1:27 pm | Permalink

      There is a Reuters article by James Saft saying pretty much what Nick says. See:

      http://blogs.reuters.com/great-debate/2009/07/28/europe-borrows-from-peter-to-lend-to-peter/

  10. Single Acts
    Posted March 1, 2012 at 9:30 am | Permalink

    You realise of course, the Fed lending to the ECB, to lend to commercial banks to lend to Euro sovereigns is simply to protect the US banking undustry en masse, exposed as it is to Sovereign credit default swaps. So if a European country goes bankrupt (officially, they are de facto bankrupt now), it could easily trip another, and with it the credit events which trigger CDS and then it’s bye bye to the American banking system.

  11. Nick
    Posted March 1, 2012 at 9:41 am | Permalink

    The big problem is how do you unwind these loans?

    So in three years times, the banks have to pay back the ECB.

    So if they have matched liabilities against assets, they will have lent just under 3 years to the governments.

    Where are the governments going to get the cash to pay back their borrowings?

    They are still going to be running massive deficits, and have huge black holes in their accounts because they are doing what you are doing, hiding the liabilities off the books.

    Still no figures for the state pension and what you owe to the public, as promised when you were trying to be elected John. Don’t you believe in pre-election promises?

    Reply: I have set these out several times before,

    • Martyn
      Posted March 1, 2012 at 11:29 am | Permalink

      “Where are the governments going to get the cash to pay back their borrowings”?

      Simples! They print more worthless bonds and swop old for new and the merry-go-round keeps on going around until someone or something calls their monumental bluff…

  12. Robert K
    Posted March 1, 2012 at 9:45 am | Permalink

    A giant money printing scheme like this is bound to end in disaster. The most likely outcome is hyperfinlation.

    • Single Acts
      Posted March 1, 2012 at 11:21 am | Permalink

      Forewarned is forearmed.

  13. Brian Tomkinson
    Posted March 1, 2012 at 9:49 am | Permalink

    Isn’t this just a back door way for the ECB to invent money to support sovereign debt in the countries of the eurozone because it is illegal to do it directly?

  14. oldtimer
    Posted March 1, 2012 at 10:16 am | Permalink

    Clearly the can being kicked down the road has got a whole lot bigger.

    • James Sutherland
      Posted March 1, 2012 at 7:03 pm | Permalink

      It’s not so much a can being kicked down the road, as a snowball being pushed uphill, akin to Sisyphus – but with each step, the snowball gets bigger, heavier and harder to support. The central bankers complacently assume we’ll reach the top of the hill soon – but they were predicting that a trillion pounds ago, too, and that snowball’s big enough to crush us all now.

  15. sm
    Posted March 1, 2012 at 10:33 am | Permalink

    1 trillion euro. What happens in 3 years? Is there a plan to 1) restructure and breakup banks forcing losses. 2) re-capitalise all losses via central bank/state subsidy 3) just get past elections?

    How are our banks addressing the SME gap as noted by Sir Mervyn King?
    http://www.telegraph.co.uk/finance/economics/9114395/Sir-Mervyn-King-accuses-banks-of-profiting-at-taxpayers-expense-by-rigging-lending.html

    Can we allow pension funds and or SIPP’s to loan money via new methods to bypass banks (that cant or wont lend unless its a taxpayer guaranateed win)?
    http://www.fundingcircle.com/investors?utm_source=iinvestor&utm_medium=email&utm_content=4&utm_campaign=II010212

    Why not just eliminate NI for SME enterprize, they after all tend not to globally outsource labour? We can then extend it to all companies in due course. That must increase liquidity and reduce borrowing requirements.

    Why not allow delayed settlement on VAT based on asset security or personnel guarantees. Interest should be waived if the cashflow is used to paydown debt or expand labour force?

    Note the US is rapidly moving to local,state controlled banks based on the Bank of North Dakota. Why are we not considering this at a national or regional level. HMG could transfer its business to a national public bank or banks, first located maybe in Wales.

    http://www.globalresearch.ca/index.php?context=va&aid=29511

  16. Neil Craig
    Posted March 1, 2012 at 11:00 am | Permalink

    When the japaneswe property bubble burst the government made keeping insolvent banks propped up their priority and succeeded. They also gave Japan, which had previously had the world’s fastest growth rate, 2 decades of zero growth.

    Of course the EU is not starting from that strong a base and is further handicapped by our Luddite ruling class.

  17. theyenguy
    Posted March 1, 2012 at 12:19 pm | Permalink

    The sovereign Lord God is bringing forth a diktat monetary system.

    Daniel’s interpretation of Nebuchadnezzar’s dream presents the statue of the progressions of kingdoms, Daniel 2:31-45. Kings have ruled mankind throughout history; these have included Nebuchadnezzar ruling Babylon; Cyrus and Cyrus and Darius ruling Merdo Persia; Charlemagne ruling Rome; Tony Blair ruling Great Britain, Angela Merkel ruling the EU, and George Bush, The Decider, ruling America with Unilateral Authority. Soon ten kings will come to rule, each in his own regional power base. Most recently two iron kingdoms, the combine of the UK and European rule, and the US Hegemony, have governed the world; their power is now flowing into a ten toed kingdom of regional global governance, Daniel 2:31-33.

    Life in Europe can now be characterized as a totalitarian collective. Totalitarian collectivism is the EU’s future. Greek Socialism died in February 2012, as Bloomberg reports Greece Parliament Approves Pension, Health Cuts in Race for Second Bailout. European Socialism will die in 2012. Diktat will provide seigniorage, that is moneyness, to replace the seigniorage of national treasury bonds. Diktat will become a currency, that is a payment used in the exchange of goods or services.

    The seigniorage of fiat money is failing, and the seigniorage of diktat is rising in its place, as is seen in the rise of power of the EU ECB IMF Troika to appoint technocratic government in Greece and Italy, as well as in the authoritarian terms of the massive Second Greek Bailout Agreement, and as well as in Mario Draghi’s LTRO s have regionalized EU banks creating a One Euro Bank, with Ambrose Evans Pritchard writing LTROs make things massively more dangerous as the banks borrow cash from the ECB to acquire sovereign bonds, and Harry Wilson of The Telegraph writing European Central Bank’s cheap money has just turned toxic banks into zombie banks.

    The fiat monetary system is being replaced by the diktat money system, which will eventually rule in each of the world‘s ten regions as heralded in Daniel 2:31-33.

  18. Chris
    Posted March 1, 2012 at 1:00 pm | Permalink

    News just in re Greece, ISDA and decisions re the two questions about whether a major credit event had taken place i.e. default. No default, but a proviso at the end of the press release re the situation being dynamic – see below.
    http://www2.isda.org/news/isda-emea-determinations-committee-credit-event-has-not-occurred-with-respect-to-recent-questions-on-the-hellenic-republic-restructuring
    NB
    “…The EMEA DC noted, however, that the situation in the Hellenic Republic is still evolving and today’s EMEA DC decisions do not affect the right or ability of market participants to submit further questions to the EMEA DC relating to the Hellenic Republic nor is it an expression of the EMEA DC’s view as to whether a Credit Event could occur at a later date, in each case, as further facts come to light…”

    • sm
      Posted March 1, 2012 at 10:32 pm | Permalink

      Probably depends on the interest/redemptions continuing to be honoured on time?

  19. uanime5
    Posted March 1, 2012 at 2:05 pm | Permalink

    Speaking of money I was watching an interesting debate on TV involving one of the business leaders who was calling for the 50p tax rate to be scrapped and an expert who was explaining why it should stay.

    The business leader said that the 50p tax rate would cause people to go abroad, the expert pointed out that the wealthy had been saying since the 80’s that the high levels of taxation would cause them to leave the country but they’ve never left. The expert also asked where these people would go anyway? The business leader said Switzerland and the expert pointed out the Switzerland had a similar if not higher rate of tax.
    The expert also pointed out that France was planning to increase their top tax rate to 75% to improve growth.

    The business leader then stated that the 50p tax rate was bad for companies and the expert pointed out that limited companies were already receiving tax breaks, as were entrepreneurs. The expert also said that more help was needed for micro-employers, not big businesses, and that as big businesses already had several billions in savings they didn’t need any extra money.

    Finally the expert pointed out that according to the HMRC the 50p tax rates only effects 300,000 people (the richest 1%) and raises £5 billion every year. So unless these 300,000 people leave the country or tax avoidance doubles (the HMRC’s figures show it loses £5 billion in tax avoidance every year) the 50p tax rate won’t result in a loss. He also pointed out that as removing the 50p tax rate would be the equivalent of giving the wealthiest 300,000 a tax free gift of £15,000 per year at a time when most people are having their tax credits cut it would be very unpopular.

    Before anyone complains about the left wing / liberal / socialist bias of the BBC this interview was on Sky News. That’s right even the right wing media is questioning a tax cut for the wealthy.

    • Richard
      Posted March 1, 2012 at 4:01 pm | Permalink

      I too saw that interview, but please note that the £5 billion revenue quoted was an estimate made when the tax was being introduced and current estimates are now much less.
      Some experts are quoting only a small extra tax take and that is just in year one before people start modify their behaviour to try to get round the 50% rate.

      It is also worth noting that these top 1% are already providing this country with over 20% of the whole income tax take. (Golden goose and all that….)

      In some ways I agree with you, as I feel the current priority should be to raise the starting point at which people begin to pay tax and NI, first, before the top rate is reduced.
      It would be good politically and good economically.

    • lola
      Posted March 1, 2012 at 4:55 pm | Permalink

      Quite, but the arguemnt is sterile. More relevantly why should anyone pay income tax at 50% + (don’t forget NIC)? It is just not justifiable that anyone should be required to hand over such large slices of their own edeavours., There is no moral case for it whatsoever. It is pure envy. Surely the argument should be how low can we make taxes on everyone. There is no virtue at all in State profligacy justified by cheap envy creation tactics. In any event we are all taxed at 50% – since tax freedom day now arrives in June (?). That takes into account all taxes. So your Granny on her £6,000 p.a. state pension actually spends £3,000 on herself and £3,000 on tax.

      Moral. High taxes are evil.

    • Electro-Kevin
      Posted March 1, 2012 at 5:49 pm | Permalink

      300,000 people stumping up an extra £5bn a year sounds pretty iniquitous to me, however rich they are.

      The success of this policy will have a lot to do with how that tax is spent too.

      • Electro-Kevin
        Posted March 1, 2012 at 7:05 pm | Permalink

        “France was planning to increase their top tax rate to 75% to improve growth.”

        And growth is what they will get … of the State.

        What they won’t get is growth in business and wealth generating ideas.

        • uanime5
          Posted March 2, 2012 at 11:53 pm | Permalink

          Given that business leaders are calling for higher taxes it seems that they believe high taxes will be good for France.

    • Bob
      Posted March 1, 2012 at 8:03 pm | Permalink

      It’s not a problem, you just need to follow the artful dodger, Ken Livingstone.

    • APL
      Posted March 1, 2012 at 10:58 pm | Permalink

      uanime5: “That’s right even the right wing media is questioning a tax cut for the wealthy.”

      The ‘right wing’ media in this case is not ‘questioning’ anything. They appear to be airing opposing views.

      Interesting how you characterize the participants. The ‘expert‘ on the government big state side of the argument and only ‘some guy’ who happens to run a business, but he is not an ‘expert‘ ‘cos he only knows how to produce wealth not like the real ‘expert‘ who, I expect only knows how to spend the results of other peoples work, hence his eagerness to get his greedy little mitts on more of it.

      • uanime5
        Posted March 2, 2012 at 11:59 pm | Permalink

        The expert was some who has spent years studying the effects of tax policies on the UK, unlike business leader who seemed to have no idea what he was talking about.

        For example the business leader seemed to believe that because of the 50% tax rate the 300,000 people who pay the 50% tax rate would leave the country. When asked where they would go he couldn’t name a country with a lower tax rate, he could only give vague answer such as Asia.

    • Benno
      Posted March 2, 2012 at 10:00 am | Permalink

      Long time listener, first time caller. I’m getting suspicious about this 50% tax debate which seems to assume, without question that the affected taxpayers are “entrepreneurs”. I have never seen or heard anyone analyse the make up of this 300,000 people. I can’t find any numbers, but I think there must be a lot of doctors, lawyers, public sector chiefs, (the cabinet?), etc who are in this number, and who cannot relocate elsewhere. Don’t take any of that to mean I am in favour of high tax rates, just that I hate fact free debates.

    • libertarian
      Posted March 2, 2012 at 11:32 pm | Permalink

      Oh dear

      I guess you star “expert” never heard of Sweden then.Who after decades of high taxation on thee wealthy found…..guess what a large number of them left the country and took their businesses abroad.

      Please preserve us from self appointed “experts” we don’t need their opinions when facts work far better

  20. Frances Matta
    Posted March 1, 2012 at 6:17 pm | Permalink

    For a little light relief from all of this, amazingly from BBC R4, I suggest you settle down and listen to “The Squanderland Roof”, the afternoon play broadcast 28.2.12.
    Laughter is the best medicine.
    When those in power only appear as risible fools their game is up.

  21. Frances Matta
    Posted March 1, 2012 at 6:28 pm | Permalink

    For a little light relief may I suggest you go to BBC iplayer & listen to “The Squanderland Roof”, the R4 play on 28.2.2012.
    I never thought I’d hear the EU/euro being ridiculed by the BBC.
    Laughter is the best medicine.

  22. Martin
    Posted March 1, 2012 at 7:23 pm | Permalink

    I’m curious as to why you focus on the ECB’s “Loads of Money” exercise. Is it any different from our own glorious BofE’s quantitative easing exercise?

    Reply: I have often written about the B of E before. There is a big difference , in that the ECB is not backed by a single sovereign and a single set of taxpayers.

  23. Lindsay McDougall
    Posted March 1, 2012 at 7:37 pm | Permalink

    This information dovetails very well with what Liam Halligan has been saying in Telegraph newspapers. There are a number of ‘zombie’ banks in Europe that are so broke that they are incapable of lending. These banks need to be killed off so that the remaining banks can trust each other again so that the interbank lending market can flourish.

    Only enforced full disclosure of toxic assets and bad debts can do this. It may need primary legislation both here and in Europe. Directives are unlikely to be adequate. It’s not just Liam Halligan who is saying this. Mitt Romney has said it too. Whatever else we may think of him, Mitt Romney knows what he is talking about on financial matters. America could have worse presidents (it has got one at the moment).

  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

  • John’s Books

  • Email Alerts

    You can sign up to receive John's blog posts by e-mail by entering your e-mail address in the box below.

    Enter your email address:

    Delivered by FeedBurner

    The e-mail service is powered by Google's FeedBurner service. Your information is not shared.

  • Map of Visitors

    Locations of visitors to this page