The Bank of EnglandĀ yesterday after a bruising few days for them in the bond market decided that they needed to stop selling bonds, driving prices down, and do something to try to rally them. That is good news at last. The Bank’s selling came on top of the bond rout brought on by the US Central Banks interest rate rising policy, and their own sales policy of government bonds. If the Central Banks themselves think bonds are too dear and should be brought down in price, others will agree with them.
Bonds are parts of the debt the UK government has borrowed from pension funds, insurance companies and others. They are the government promises to repay the money they borrowed. They can be sold on by the people and institutions that first lent the money to the government, so they do not have to wait for the repayment date of the loan. If the prices of the bond fall then the rate of interest you get on it goes up, and if the price rises interest rates go down. If you bought a bond where the government promised to pay just 1% interest but interest rates meanwhile had gone up to 2% then you would sell the money you lent to the government for less so the next person receiving the interest on the bond would get a 2% return on his investment. How much the bond falls by depends on when the government is going to repay the full amount anyway.
The biggest buyer of these bonds in recent years has been the Bank itself since Labour introduced the policy of the Bank buying up state debt, continued by the Coalition and the Conservatives. At its peak the Bank owned Ā£875bn of government debt. It rightly stopped buying up more of it last year, as the policy was proving inflationary. More recently it said it would start selling some of the bonds it owns. It said it wanted to shrink its balance sheet, swollen by the large amount of bonds it owns as an asset. They started selling very recently just as global bond markets led by the USA took another nose dive on interest rate rises announced by many Central Banks and in anticipation of more rises to come. The addition of Bank of England sellingĀ implied that they wanted to see the bonds go down in value andĀ added to the general selling pressures on UK bonds.
Yesterday the Bank acknowledged that selling now with bonds soĀ much lower in price would not be good idea. They did not, however, say they would end the sales programme unless and until bonds had picked up substantially. That was a pity, as the value of these bonds matters to families with mortgages and businesses with longer term borrowings. All the time the Bank says it will sellĀ as the largest potential seller it can spook the market. The Bank’s wish to shrink its balance sheet has ironically been achieved in the last few weeks by the fall in the value of the bonds it holds. Crystalizing the loss makes no sense.
These interest rates matter. There are 2,5, 10, 20,30 year rates and others in between. If the 10 year or 20 year bond rate goes up so bank lending for people to buy homes will also go up, as will the cost to business of a longer term loan to invest in their company. Mortgage holders and businesses do not want their Central Bank actively intervening in the markets to drive these interest rates higher. The Bank should believe its own forecasts which show inflation tumbling next year. High energy prices and dearer mortgages are already taking too much demand out of the economy. Thank you Bank for at least a temporary pause to your driving the mortgage rates up.
September 29, 2022
The BoE has just announed that it has set aside 65bn to purchase bonds over the next 2 weeks to stem the decline. It may well not be enough.
The 30 yr gilt yield spiked to 5% yesterday, falling back afther the intervention was announced, the 10 yr currently stands at over 4%. After all the years of us, righly, bashing Labour over the economy we now haven’t got a leg to stand on. This ‘mini budget’ has been an absolute disaster and I have no heard one economist nor financial services industry professional, regardless of political persuasion, argue any differently.
The Chancellor must go and, frankly, I am not holding out much hope for the PM lasting until anywhere near 2024. What an absolute, poorly thought out and indefensible, mess.
September 29, 2022
Exactly. You would have thought the Chancellor would have had advice to predict the consequences of his announcements, so he could reflect on whether it was worth it.
September 29, 2022
Another Tory “Two-brains” who doesn’t seem to have even one that functions properly!
September 29, 2022
Tice gives good advice in the papers today to solve the self inflicted economic Tory mess. What do you think JR?
September 29, 2022
Warwick, which section of the mini-budget would you change? Would you have dropped the personal allowance on NI back to Ā£9500 with the reduction from 13.25% to 12%, or would you have kept both the Ā£12,570 and the 13.25% NI?
Would you have kept the 20% tax rate about Ā£12570, or would you have increased it instead of taking 1p off?
Would you have kept the 60% income tax from Ā£100k to Ā£120k and left the 45% tax above Ā£150k or increased it?
Would you have not taken the cap off bankers bonus’ why don’t you believe this will have any good benefits for the UK?
Is there something I’ve missed?
September 29, 2022
A-Tracy
The thing that you missed was the one thing I have been banging on about well before Alexander Johnson MP finally got the hint and quit his job as PM – Cut spending !!! Natably, the overseas Aid Budget which is running around Ā£14bn. No loss to us but, that is roughly the same amount the UK collects in Employers National Insurance Contributions. He could have funded a tax cut for FREE ! And it is not as if our kind host did not know, and it is not as if such a cut in spending would have been unpopular with the electorate otr the City.
All this is self inflicted. Overseas Aid is a Tory idea.
September 29, 2022
I follow a few left friends on Twitter, they’re getting very hot and bothered about a tax cut for the 1% and what little trickle-down effect they think this will have. The government clearly need to explain why they think this is a good idea. It annoys me that such a big tax giveaway was given to people and MPs like Caroline Lucas lie and say Who are the winners- bankers, city fat cats, fossil fuel giants, who are the losers everyone else. It is a massive deduction in national insurance, the 1p deduction will help far more people than the top 1%. The last time Osborne dropped 5% off the top rate of tax even fact checker said it was neutral and even was an increased tax take taking in several years around the point of the reduction.
Have taxes increased from the top 1% or not in line with inflation over that Osborne reduction period to now?
On Foreign Aid, they’ve been retweeting a thread. They say that the manifesto from 2019 is a public declaration of policy and aims. One of those was “we will proudly maintain our commitment to spend 0.7% of GNI on development, and do more to help countries receiving aid become self-sufficient.” page 53 Under it, they put an article from the Independent saying this has been cut to 0.5% and complaining about that. There are as many people saying we’re not doing enough as people are saying we’re doing too much. If it is Ā£14bn or more and as much as we collect from NI this needs writing up large.
Where I sit on it is that I don’t think what we do pay out is fully recorded. I don’t think the foreign aid we have spent on the Ukraine war is counted; I don’t believe all of the foreign aid on our boat people in hotels, picking them up, and the top-ups to the RNLI they’ll be contributing, with medical treatments, clothing allowance and other benefits get totted up and included. They don’t mention how two years of covid restrictions and full lockdowns for months on aid changed any promises made on that due to all the money that had to be created to pay for those lockdowns, lockdowns the left never wanted to end. Why don’t the government give us a list of all the foreign aid in one place, including our refugees in Jordan and everywhere else?
September 30, 2022
You might want to have a look at http://www.gov.uk āStatistics on International Development: Final UK Aid spend 2019ā, 20/07/2021.
That looks like the last presently available report. It might now be necessary to go through reports from FCDO.
September 30, 2022
16 May 2022 The UK currently spends about Ā£11.5bn each year on aid – after cutting the budget by Ā£3bn last year. Almost 40% of the aid budget is currently given to the UN, the World Bank, European Union and other global bodies to spend on their own aid budgets.
As the fifth largest provider of financial contributions to the United Nations, the UK provided 5 percent of the UN budget in 2015, and 6.7 percent of the peacekeeping budget.
5 Nov 2021 ā It is estimated total ODA will be Ā£11.1 billion in 2021, down from Ā£14.5 billion a year before. We gave Ā£14.5 billion in covid lockdown year! How was it so high when our real GDP would have dropped through the floor.
It was reported that we were spending ANOTHER Ā£1bn on the Ukraine war.
Thank Hefner but the link you gave me isnāt very clear and it talks in millions rather than the billions we spend. Iād just like a breakdown of the largest amounts i.e. Ā£4bn to house asylum seekers in the UK, Ā£2bn to house asylum seekers in the Middle East, Ā£2bn to the Ukraine War contribution, Ā£1bn to China, Ā£1bn to India. Ā£2bn to Africa
September 29, 2022
+1
September 29, 2022
I’d have increased Personal allowance by Ā£5k, raised the 20% limit to Ā£55k, but reduced the Higher rate from Ā£150k to Ā£120k.
I would not have not taken the cap off bankers bonusā.
September 29, 2022
MT, the personal allowance has effectively been increased by Ā£3k.
The people on Ā£100 to Ā£120 pay 60% tax anyway; these are head social workers, head teachers, doctors, etc. they’re quitting in their droves and retiring early. So we end up paying them over 70% of their usual salary early for nothing in pension for 3 or 4 decades! and people are worried about people retiring at 68.
September 29, 2022
Politically, that is probably a more attractive offer to voters MT
September 30, 2022
MT
Would certainly have made more sense
September 29, 2022
AT,
Agree with you that any tax cuts are good as you say. However, how are they funded with continued govt wasteful spending? Borrowing again for tax cuts on top of energy borrowing bail out!
Cuts to Govt spending should have been made in tandem to pay for tax cuts. Govt spending needs drastic culling.
Johnsonās first budget was tax and wasteful spending before lockdown, followed by printing and borrowing for unnecessary and over protracted lockdown. It does not add up. In short more tax cuts but loads of govt spending cuts ie quangos, all backroom staff to all public sector bodies especially NHS local authority police etc. none to front line staff providing service delivery. All diversity positions culled small HR teams sufficient. All bean counters and inspectorate bodies cut to the bone. All govt or public sector funding to culturally Marxist groups/charities stopped. MoD radically overhauled before any increase in defence spending, they will only waste it.
Maud, Cummings were going to sort this out. Someone ruthless unafraid of public opinion- mainly socialists. I would have Cummings back to achieve cull in govt waste and spending. For me the difficult part is knowing where to start. Council wasteful spending is truly dreadful. Khanās new statue in Trafalgar Square would be gone along with all mayoral and police commissioner posts.
September 29, 2022
@a-tracy
I have read that bankers might prefer a cap to their (variable) bonus as it gives them a better negotiating position for an increase in their (permanent) salary.
September 29, 2022
So in place of a variable bonus, they’d prefer a fixed higher permanent salary so if they don’t achieve targets they get paid whatever the result.
September 29, 2022
You have missed the huge splurge on the gas bills which was introduced beforehand. No-one seems to want to remove this unfunded bit of the plan. Or any of the huge spending during the pandemic and its aftermath. Dishonesty rules the waves.
September 29, 2022
I know rose, to suggest nothing has been done for the poor is absolutely infuriating; they are not totting up all the Ā£150 here, Ā£350 there, Ā£400 here, Ā£1200 on UC there.
September 29, 2022
If anyone should go, i’d suggest it’s the Governor of the BoE. He carried on QE for far too long, delayed interest rate rises until too far late and then has had to stabilise Gilts because Pension funds have been playing with derivatives. I could also mention that the reason they have been doing so is because bond yeilds have been so low – and that Gordon Brown completely screwed up private sector final salary pension funds in this country.
Kwarteng and Truss may be a bit tone deaf but let’s be very clear that they have not been (and are not) responsible for what is in effect a currency war between other major currencies and the US Dollar brought on by endless money printing. The Fed is aggressively hiking rates and if you don’t keep up, your currency gets burned. Simples!
September 29, 2022
Yes..exactly right!
September 29, 2022
But Warwick, there have been generous tax cuts for the rich. That is what really matters, yes?
September 29, 2022
The major costs of this budget have been the cancellation of the NI & Corporate tax increases that should never have been enacted in the first place. The NI correction benefits everyone in work. The Corporate tax correction also makes sense for those who wants to see companies based here. Take a look at how many US companies (that are major players in the UK marketplace) are based (and pay taxes) in the Republic of Ireland.
However, the main cost was the cap on energy bills. Is anyone seriously suggesting that this was not neccesary? Some seem to think this should have been ‘funded’ by more tax increases. Really? We are already going into a Global recession and the only question is whether the UK will have a long, deep one – or a short, shallow one. What kind would you prefer Pauline – and how would you bring your preferred solution about??
September 29, 2022
Surely one of the main things worrying the market is the very high chance of a Labour government or worse still a Labour/SNP/Libdim coalition government – perhaps in as soon as 18 months. Something like a 77% chance is indicated by the betting odds. The problem for Truss/Kwasi is there is so little time for her (slightly) more sensible economic policies to turn the economy round before the next election. The one thing we certainly do not need is even worse policies than we have suffered under Cameron/Osborn, May/Hammond & Boris/Sunak from Starmer/Strugeon/Cable with their even bigger state, nationalisations and even more green crap agenda.
The Tories need to ditch (or at least put on hold) the net zero religion. For the next election āGet cheap, reliable, on demand energy doneā Without it so many industries will be unable to compete internationally.
September 29, 2022
I read that:- Keir Starmer rules out any deal with SNP ābefore or afterā general election.
Well if you believe Starmer on this you will surely believe almost anything, even perhaps in the āmanmade climate emergency religionā.
Starmer will certainly have a coalition if he needs one to gain power (or he would be removed) – he will just call it an āarrangementā or an āinformal agreementā or something similar. Just as the EU constitution became the Lisbon treaty & then the foolish Cameron ratted on his Cast Iron referendum promise, throwing away the overall majority that he would have won with more sensible low tax, no treaty ratting and an EU referendum immediately policy.
The best way (perhaps only way) for Truss to win the next election is to make it clear you will get a Starmer dog wagged by a Sturgeon tail. That and bury the net zero, rip off, unreliable energy lunacy that Starmer and that Libdim dope Ed (I killed fracking and new nuclear) Davey and Sturgeon have foolishly hooked themselves to.
September 29, 2022
I think we just need to remember that Starmer wanted Corbyn to be Prime Minister.
September 29, 2022
+1 and to reverse the democratic peopleās vote for Brexit. His Great British Energy Company will doubtless be a complete disaster like the NHS, rail track, the BBC, Channel 4ā¦and nearly almost all state state owned & unfair/tax payer subsidised state competition is.
September 29, 2022
Dear Lifelogic, The last time I checked, the biggest UK power supplier was The Great French State Energy Company (EDF). This is in a parlous state because it needs billions to rebuild its home nuclear power. Depending on the price, it might be a good idea to buy it back in order to expand our UK nuclear power production much faster than EDF could possibly justify. Sadly, Labour, once the pioneer of atoms for peace, would not now have the slightest interest in such a project.
September 29, 2022
And that he colluded with a foreign power over three years to overthrow our democracy.
September 29, 2022
The best and only way for Truss to win the next election is to kick-start the economy (which is what she’s trying to do); bring down the cost of domestic energy (which she isn’t trying to do) and reduce immigration, particularly the importation of criminal migrants (which she appears to have no intention of doing).
So she’ll lose.
September 29, 2022
+1
September 29, 2022
LL, they are all drunk on wasteful spending! Reform party is the way forward. The last three Tory govtās trying to be more socialist than Labour by implementing their policies and hiring, yes hiring, former Labour ministers. We had Handcock taking advice from Blaire for deadly vaccines we now have Truss being reported for allowing Blaire to negotiate with EU over protocol! Why have a vile creature like him anywhere near govt decisions let alone an alleged Tory one!
Your perpetual harping about the dangers of labour are totally hollow when there is absolutely no difference whatsoever. 12 years of continuity labour is shameful especially after an 80 seat majority! Truss could have put JR in No.11, she chose a quota system of selection that she herself was elected on.
September 29, 2022
Agreed Hope. I am hoping for another ‘UKIP moment’ at the next general election because the main parties are so damn complacent they think they repeatedly get voted in on a bunch of dishonest manifesto promises, they think they can run our country into the ground to ‘save the world’ from CO2, they think they can treat us as badly as they like (priority given to criminal immigrants and ANY vocal minorities!), and they think they can ignore their democratic mandate to get the UK OUT OF THE EU!
They need a dirty big wake up call! A very LOUD one.
September 29, 2022
Reform party policies may well be, but the reform party will not win a single seat I predict.
September 29, 2022
LL: Neither did UKIP, but they (and Farage) got us our referendum. Votes give a message too. They gave us the opportunity to get out of the EU, and we took it! Without UKIP, we would still have been waiting to be given a choice … decades too late!
September 29, 2022
If you carry on with that belief then nothing will change, and that’s what the legacy parties want.
September 29, 2022
Please give your obsession with net zero a rest. Hundreds of posts all saying the same thing. I know umpteen people who are concerned about it including myself plus far younger generations that you are totally out of touch with as on a number of your other pet subjects.
September 29, 2022
True that lots of people & especially the young have fallen for this nonsense religion, Perhaps brainwashed by the BBC, David Attenborough, the BBC, King Charles, governments, charities, St. Greta, most political partiesā¦ but they are very clearly deluded if you look at the real science. Adaption as needed – be it hotter, colder, wetter, drier or just the sameā¦ as is needed. This is the sensible policy even if the alarmists are right and they are not. .
Atmospheric CO2 concentration is certainly no World thermostat.
September 29, 2022
LL – I’ve not fallen for a ‘nonsense religion’, but from a pure conservative desire not to use power to excess and to keep my home costs down, I got a smart meter fitted (I know lots of you are against it), but this allowed me to monitor my use daily (granted the BG meter initially wasn’t stable and did break for three months!) but I started to realise where I could save energy use and save money.
My bills haven’t gone up; in fact, they’ve gone down with no hardship. For the first time, I started to investigate e.g. the water boiler, how long we were heating it for, how long we needed to heat it for, to keep hot water whenever we wanted it; we cut the water heating time down and saved Ā£30 per month.
To top the car up with electricity for the week takes Ā£8 the petrol on my 17-year-old car was taking Ā£45-Ā£55 pw, we leased the electric car rather than buying to test it out for a couple of years, I’m not confident for trips over 100 miles. However, I only have to top it up once per week I don’t like not knowing when and where I can refuel. I replaced two energy-hungry electric heaters the saving won’t be this year because of the outlay for the new modern electric eco heaters, but they did need replacing anyway. I also made little changes like only filling the kettle up to bar two for two drinks rather than boiling up to the top every time. It’s not a hardship.
I’ll be looking at the tumble dryer next this winter as I suspect that is one of the significant causes of electric spiking in winter. All through the summer, I use Ā£3 of electricity per day, mainly up to Ā£5 on tumble dry days. Even when we’re not in, we’re using Ā£1.90 daily. Do you know what you’re spending? When I ask people, generally, they don’t know how much they’re spending per day, per week.
September 29, 2022
I was a climate change sceptic for a few years, convinced that it was all down to Milankovitch (Orbital) Cycles. I studied the subject extensively and corresponded with some clever people who had no sponsorship axes to grind. Summed up recently by for instance
https://climate.nasa.gov/ask-nasa-climate/2949/why-milankovitch-orbital-cycles-cant-explain-earths-current-warming/
But my big engineering question was finally answered by Dr Iain Stewart who made the Earth: Power of the Planet for the BBC. How can CO2 trap so much heat if it only makes up 0.04% of the atmosphere? https://youtu.be/SeYfl45X1wo
Also, the now standard classroom experiment https://youtu.be/kwtt51gvaJQ of how CO2 absorbs heat. I don’t expect to convert anyone but offer it for debate.
September 29, 2022
Thanks acorn very interesting.
The problem is we need many billions to avert climate disaster…(as predicted)…but the cost effects of the policies to avert climate disaster might mean the major world economies might not have enough money to achieve it.
September 29, 2022
@Hope
How much CO2 did Dr Iain Stewart pump into the tube?
I’ll bet it was a lot more that 0.04%
September 29, 2022
Si your happy for the country to bankrupt itself whilst the rest of the world motors on serenely
Like the CCA, Net Zero is a masterclass in self harm.
September 29, 2022
As you can see, there is a limit to what the present administration can announce without their enemies going berserk. The media are drunk on having removed Boris and want to do the same again.
September 29, 2022
Five out of fifteen posts by Lifelogic at the moment – a third.
However ditching net zero is not something that I would object to. It just does require to be repeated ad infinitum.
September 29, 2022
Does NOT require
September 29, 2022
It needs repeating until they finally actually do it! It is a disastrous and scientifically illiterate policy.
September 29, 2022
LL,
That is why you are so tiresome.
You never ever take the hint to be more concise. When there were requests by the host for brevity you simply chopped up your lengthy post into multiple smaller ones.
Nobody is listening. Do us a favour and think before adding immense verbiage (and asides about your hobby horse concerns).
You have gone overboard with the old adage for speechs:-
“Tell them once, tell them twice, tell them a third.”time”
September 29, 2022
Interesting that the Telegraph ran a story that the turmoil on the currency market was instigated by Remainer hedge funds. The first real divergence from EU rules and they dontlike it.
Let’s hope Liz has thick skin
When so many WEF followers are against her, she must be doing something right.
September 29, 2022
Remainer hedge funds? A hedge fund exists to make money out of any imbalanced situation, which is clearly the present UK situation. Would you prevent a GP from looking at your health problems?
September 29, 2022
Just who is “Lifelogic” ?
I know that if I tried to post five comments in a short time, they would be in moderation for days.
Given his favoured status by our host, I suspect he is a friend of his posting under a pseudonym.
Sir Christopher Chope, for example ?
September 29, 2022
No not in politics at all. I have never met JR though approve of the vast majority of what he says. He has proven to be broadly correct for about 35+ years. I am just a Maths, Physics, Engineering chap (Cambridge then Manchester) and businessman.
September 29, 2022
No not in politics at all. I have never met JR though I approve of the vast majority of what he says. He has proven to be broadly correct for about 35+ years if only the government had followed his wise advice.
I am just a Maths, Physics, Electronic Engineering chap (Cambridge then Manchester) and businessman.
September 29, 2022
Net zero as a doctrine and the UK’s implementation of the cause needs to be questioned regularly @NigL and by a wide range of commentators.
September 29, 2022
Sorry Nig1 but I feel LL is correct to go on about net zero. It is at the very scourse of all that is wrong with our society and economy today. He’s right to state that without cheaper energy and energy that’s there 100% of the time is of the utmost importance if we are to stand any chance of getting back on our feet. Net zero is the route to hell and I wish our politicians would stop talking about it and get back to reality. LL can go on about it as much as he likes in my book.
September 29, 2022
+1
September 29, 2022
‘Net Zero’ is one of the tools of the Great Reset, as are mass immigration, the ‘cashless society’, cancel culture, gender identity politics, and Covidianism. You and your young friends are being herded like lemmings into a Chinese-style serfdom, and unfortunately the rest of us cannot avoid being swept along with you
September 29, 2022
People are concerned about it because they’ve been conditioned / brainwashed to be concerned about it.
You don’t counter conditioning / brainwashing by shutting up. You argue your case, which is what we are now increasingly seeing genuine scientists doing – those who haven’t been bought by the Globalists.
No-one has told the conditioned / brainwashed youngsters that what the Globalists have planned is a massive reduction in their living standards – basically making them live in a world which resembles the post-WW2 austerity years of the late ’40s/early ’50s. Rationing of everything.
September 29, 2022
Net Zero is based on a fallacy. The justification for it is an hypothesis that increasing CO2 concentration in the atmosphere will result in dangerous levels of Global warming. So far there has been no empirical data to validate this, therefore the hypothesis is not correct. It is irrelevant as to how many people believe the theory: as science cannot proceed on the basis of belief, but only by what can be proven by observation to be correct. People used to believe that the Sun went round the Earth – perhaps some still do.
September 29, 2022
Nigl :
I am very happy that LL keeps plugging away at Net Zero.
CAGW/Net Zero is a scam.
There is no CAGW. Both temperature and CO2 are at historically low levels (lookng at the last 500 million years since the Cambrian explosion) having just come out of an ice age just 11,000 years ago when CO2 dropped to 180 ppm just 30 ppm above the level below which plants cannot survive. We need to raise CO2 levels not lower them.
The unilateral Net Zero Strategy to produce electrical power from expensive, low energy density and intermittent wind and convert heating and transport to impractical electric devices is economic suicide. It will end eventually as you cannot buck nature, as King Canute demonstrated, but much damage will be caused in the meantime.
September 29, 2022
There are two things the Tories need to do to win the next election. First, put clear blue water between themselves and Lib/Lab/Green by steering away from net zero. Second, hire a PR firm like Saatchis in 1979 to destroy the net zero agenda in the public mind. I see not the slightest chance of this happening with Truss and Skidmore on their present course.
September 29, 2022
It puzzles me how people like you just donāt get it. The vast majority of people BELIEVE the net zero religion. The Tories steering away from net zero will cost them votes, not gain them. The āloads more than net zeroā brigade, already vote Tory.
September 29, 2022
They don’t need to argue against Climate Change or Carbon reduction (both of which can be debated – but will clearly not be) – but what they can do is to inform voters about actual carbon emissions. In other words, if you cannot beat them, join them – but out manouver the more stupid aspects of it.
For instance, VET is currently increased above Ā£40k retail list, why not change to a VET that accounts for the total cost (in carbon) to manufacture. All cars should come with a ‘carbon’ certificate stating what was emmitted to make it. Car users could then be taxed on their total carbon emmissions based on both the build emissions and that of the fuel being used (also given that all energy should have a carbon ‘cost’). Even windmills cost carbon to build, maintain and eventually (after 20-30 years) to dispose of. How much ‘new’ carbon will be generated installing public charging points etc – it should all be carbon costed if you want a real green economy.
So don’t fight the green movement, just make sure they are being brutally honest about the true ‘carbon’ (and economic) costs of their plans – because Net-Zero simply doesn’t do that.
September 29, 2022
‘Second…’. Please read that bit too, Mike.
September 29, 2022
It would take a lot more than a PR firm to undo the last few decades of universal net zero religious fervour.
September 29, 2022
That will not be enough to secure the next election outcome, and it shouldn’t be!
This blog has had numerous detailed errors made by the Conservatives on each of the last 3 Governments, where are the corrections to the course being made?
The so-called Red Wall will desert their temporary loan of votes, and the lower to middle income voters must be thinking ‘give another lot a chance’.
September 29, 2022
Unfortunately, I have heard absolutely nothing from Labour that explains how they would make any difference to the cost of living for “ordinary” people. As far as i can tell, it’s just more Magic Money Tree, which is why we are in our current mess. We (the West) are going into a global recession. It has to happen to collapse inflation and the various asset bubbles money printing has created. It won’t be pleasant but don’t believe any Politician (or Central Banker) that tells you that this is not happening – because it already is!
September 29, 2022
Indeed and to make the point that lower tax rates can and often do raise more tax above certain rates.
September 29, 2022
What utter drivel. The markets have reacted to what this government has done. Tax cuts funded by more government borrowing combined with no independent analysis of their impact. The markets currently don’t trust this government and I don’t blame them.
As I heard it put yesterday, the UK Central Bank has just intervened in the markets to protect the UK economy from the UK government. From this, Conservative, government, not a future one of any persuasion.
September 29, 2022
Did you read the article in the FT Peter about intervening to protect the final salary pensions in the state sector?
Nothing has changed yet, the November change is small; we need some very smart people, genuinely independent people, to investigate who has been making on the pound.
September 29, 2022
Yes I did. So why did the BoE need to intervene? Because the Chancellor’s actions created a predictable change to bond yields and asset values. The positions held by the pension funds were already known, and the impact of the change in bond yields was predictable on that basis. This was foreseeable.
So, the question is why was it done in the way that it was done, given the known consequences? Did the Chancellor not ask or know (if not, why not)? Did the Chancellor know and not care? Neither is a position which inspires any confidence.
Reply The biggest increase in deficit came from the energy package last Wednesday with no market reaction. The big fall happened on Tuesday, four days after the financial statement. The big rise also happened on Tuesday. This is because the bond sell off was all about the Bank wanting higher interest rates and starting to sell bonds to get the prices down.
September 29, 2022
Sir JR
So what was the BoE spending 65 billion to get the rates up on the bonds? That does not show the Bank only going for higher interest rates as you claim?
reply They changed policy because they had damaged the bonds too much with their sales/ higher rates policy!
September 29, 2022
What about Odey hedge fund or EDL or ā¦
Moreover, how I love that. The politic of envy (supposed to be a characteristic of Labour voters) now daily appearing on this blog against those (practically a majority already retired) with a defined benefit pension. And all that from people who did not move a finger when DB pensions were systematically replaced by Defined Contribution Pension. That because at the time when the stock market was not having repeating hiccups they thought (or were told) they would be better off with a DC than a DB pension, plus all the concomitant arguments about flexibility, drawdown and the likes.
Assume your past decisions for once.
September 29, 2022
hefner, it’s not the politics of envy; it’s the politics of why have only one sector of the British workforce been protected from market force pensions. The monopoly services and only one choice service sector.
Brown wasn’t interested when he shafted people with private pensions, taking from their savings pots, the caps on pension pots before high taxes kick in is only relevant in the private sector pots, why can’t that be evened that up a Ā£1m pot buys you about Ā£4,000-Ā£4500 pa with spousal transfer at 67.
September 29, 2022
Yes Hefner, Ministers, MPs, civil servants and Bank of England officials are all on guaranteed defined benefit schemes. The overwhelming majority of private sector workers’ pensions depend on dividends, share prices, real bond yields and annuity rates (which depend on gilt-edged yields). So it is not surprising that the latter have taken an almost continuous beating from the former for the past 25 years.
September 29, 2022
Hefner one other point a big majority of the private sector never had the option of defined benefit at all. It was defined contribution or nothing. The Post Office pension fund is going to be bailed out by the public, our local council makes bad investment decisions, no problem top up the cock up from local rate payers funds, a million here, a million there. I could go on if you wish.
September 29, 2022
Peter, the BoE is mostly to blame for this – too much QE in 20021, much too slow to raise rates, most especially when the Fed was being agressive.
With regards the long term Gilt problem, this was caused by pension funds having too much exposure to derivative based risk – there wouldn’t have been a problem if they were purely in long term Gilts. But they had to liquidate their Gilt holdings to pay the margin calls on their LDIs. Their Gilt holdings were the most liquid, so Gilts got sold into a falling market and the market fell further (resulting in rising yields)
Who regulates the pension providers? Who regulates their exposure to LDIs?
It’s not the Treasury! (e.g. Government)
September 29, 2022
@IanT
Iāll be honest and admit I donāt know what you said means. I thought derivatives were used by commodity producers and brokers to hedge the future price of delivery.
I thought pension funds were staid, traditional things with investments in blue chips, bonds and property. I didnāt realise they were in the casino with peopleās pension funds.
And you ask āWho regulates the pension funds?ā Wow! Iāve always assumed they were regulated to the Nth degree. They arenāt?
September 29, 2022
Well, I’m not an expert either Mike but here is my non-expert explanation of what happened….
Pension funds look ahead at their future payment obligations (which span decades) and they broadly know how much they have to pay out every year. The funds that had problems were managing Final Salary pensions (Note – NOT Money Purchase as I understand it) and needed to seek more income than straight bonds could provide (given low Gilt/bond rates over the past decade or so).
So an ever inventive Financial Industry (for a fee!) came up with ‘derivatives’ that let these funds generate higher interest rates for FS pension funds from higher risk assets (equities, commodities, propery – whatever paid best). To underwrite these activites, the funds used their Gilts as collateral, assuming that their value was fairly stable.
The problem was that when Gilt rates went up (as did US Treasuries btw) the ‘book’ value of the Gilts shrank and the funds found themselves facing margin calls from their brokers (because they effectively then had less collateral). The most ‘liquid’ assets (easiest/fastest to sell) the funds had available were their Gilts, so they were forced to sell them into a falling market, thereby further depressing Gilt prices (and pushing yields up) further.
So this cycle was rapidly spiraling out of control when the BoE stepped in. So I would ask, if Banks can be stress tested by the BoE, why didn’t anyone spot this issue before now?
Reply The issues arise in final salary schemes using Liability driven investment. A brief simplification- This allowed Trustees to run geared portfolios where they owned more assets than they could pay for through gearing their gilt holdings. The idea is that were the gilts to fall the fund would lose more money but the liabilities would also fall given the use of the interest rate in the calculation.
September 29, 2022
Not at all sure what ‘drivel’ you’re complaining about, Peter. In fact I wouldn’t argue with you’re saying here, but I think you’re making a different point. Somehow the government have to sort out the financial shambles their budget created, but even assuming they can muddle through on that, they will still have to face the electorate on the energy front. By 2023-4 the impacts of Green dogma will start to be horrendous, so changing course on net zero could be a vote-winner, if the PR is got right. I don’t think the Red Wall can afford electric cars or heat pumps.
September 29, 2022
Utter drivel…lefty speak for I don’t have the same opinion as you.
Very PR democratic.
September 29, 2022
“The problem for Truss/Kwasi is there is so little time for her (slightly) more sensible economic policies to turn the economy round before the next election.”
So it will be the Monster Raving Looney Party v The Slightly More Sensible Party then.
September 29, 2022
Really?! Youāre grasping at straws there. What the markets are worried about is THIS government- not the next one ā¹ļø
September 29, 2022
It is long term 10 year, 20 year, 30 year gilt yields they are affecting. About a 77% chance of a Labour Gov. or SNP coalition in two years or less is indicated by the betting odds.
September 29, 2022
Hope you realise the betting odds are the results of punters like you, ie not the cleverest biscuits in the tin.
September 29, 2022
Perhaps but they are putting money at stake so usually far better than polling.
September 29, 2022
No one is more clever than heffy Lifelogic.
We all standback in awe of his mighty intellect.
September 30, 2022
Peter 2
Totally unnecessary remarks why don’t you instead present an argument for or against Hefner argument on the various pensions or is this too much of a stretch for you?
September 30, 2022
I note there there is no comments from you billy when hefner calls someone “not the cleverest biscuit in the tin”
Do you think this is an example of the decent debate you and your pal hefner calls for?
September 29, 2022
Mike, in order to stop a severe recession, what would you have preferred?
Leave businesses to cope with their own energy bills and households? Leave people without bus services and train services when this government is forced to give them very large increases and Ā£1500 benefits in kind in TFL all topped up by Central government subsidies!
The tax cuts for the over Ā£150,000 people doesn’t come in until next April 2023 by which time the payments to the EU will have fallen substantially. How come no one is talking about that, the divorce bill ending.
September 29, 2022
Because the divorce bill is not ending next year!
September 29, 2022
BBC source says contributions are going down, we were always committed to pensions that were an obligation for the 40 years we were in, although why there wasn’t a pensions investment pot needs investigating. https://www.bbc.co.uk/news/51110096 helpful chart here. 2021 Ā£7bn, 2022 Ā£5.5bn, 2023 Ā£3bn 2024 Ā£1bn
There is also a drop off in the 80% of VAT charge that used to be sent to the EU on rest of the world imports to the UK.
When are we going to receive a share of EU fines imposed by the end of 2020 around Ā£1.2bn.
The EU Investment banks Ā£3bn, EU Central Bank Ā£50m shares?
Just going off what I read Hope.
September 29, 2022
Most of this will be absorbed by Fiscal Drag – which Kwarteng didn’t change for Income Tax and a whole host of other things. I guess it’s very hard for them to turn around and say “Don’t worry, we are going to regain this money through steath taxes” – as I don’t think that would play very well either but it is what is going to happen in practice.
September 29, 2022
@A-Tracy
Where to start? First, I suppose, is why we are in for a recession. And I would say that the large increase in energy prices is a big factor. But, surely it is all more fundamental.
For decades, under useless Labour and the more useless Tories we have had an economy that runs on debt – consumer debt and government debt. As soon as either consumers or government cut down their borrowing – we go into a recession! So, we live in a fantasy world where you can just keep borrowing forever to get Mr. Redwood’s holy grail – growth.
The public sector becomes ever more avaracious. It is like a cancer. It takes over more and more of the country’s money and spends it on more and more outrageous things. It awards itself wonderful working conditions – nice clean jobs, good salaries, wonderful pensions, nice offices, good holidays, time off whenever you feel like it etc. It is, in many ways, a leech on the rest of us. But, what does government do? Precisely nothing – keeps raising taxes and borrowing and feeds the public sector.
So, without getting too far up on my high horse – I want government to set a defined limit on spending as a proportion of GDP. Investment in infrastructure is, of course, another matter. That needs to be judged on its own merits. But day to day spending has to be controlled.
Look at the way they are pissing money up the wall housing people who arrive here illegally in hotels. They don’t give a toss. It’s not their money. It’s either our money or its borrowed money – to be repaid by future generations.
To be honest, the whole political system in this country nauseates me.
Cancel HS2.
September 29, 2022
Mike
Agree with many of the points you make.
We need to get back to basics, but we were promised that a few decades ago, another failure.
September 29, 2022
I agree Mike, but we are where we are. Our council put up with not having a bus service throughout the whole month of August, the regular customers could just go and sort themselves out, get bicycles, lifts of friends and family or lose their job! The company providing the bus service wasnāt too bothered because no action was taken against them, in fact they got a bigger subsidy and their striking workers all got back pay and bonus. It saved them all the dirty diesel bill they overspend on because they use double deckers on rural routes that they could do in a seven seater taxi! The taxiās mind you make so much money running children to school that they can park up taxiās outside the school all day unused!
The balance is swinging too far and people will start to kick back when they wake up to it.
September 29, 2022
LL – your last para. Agreed. If they did that, and only that, Truss might have a decent chance of getting elected when she faces the country.
September 29, 2022
Allister Heath is right today:- āLiz Truss must hold her nerve as the world tips into a calamitous recession
She has a crisis plan, unlike the elites whose orthodoxy brought the global economy to the brinkā
Well a tiny step in the right direction but far, far more to do Mrs Truss. Cut the state down to size, ditch net zero, cull the endless government waste, cut taxes further, sort out Northern Ireland, the dire state monopoly NHS, Transport, the great university con trick, have a huge bonfire of red tapeā¦ a rather large in tray for her team.
September 29, 2022
LL, Agree with the direction of travel point.
Unfortunately KK stood up on Friday and announced grand tax cuts of Ā£40bn+. There was no suggestion of how much state spending would reduce and hence ‘everyone’ assumed borrowing would rise by the same amount.
The intentions need to be fully explained.
September 29, 2022
+1
September 29, 2022
Interestingly the gas and electricity subsidies and NI and Corportation tax reversals were already priced in. It’s the 5% lopped of top rate that has spooked the market. This is only Ā£2 billion out of Ā£400 potentially so a very odd reaction.
Someone is making some money from the little people
September 29, 2022
It is not that trivial 5% at all. That will actually increase the tax take not reduce it. Tax to death dope Osborne should have ditched 50% and 45% immediately he took office for this reason!
September 29, 2022
so how does the Ā£2bn handed out to top earners solve our Social, NHS, Transport and Energy crisis?
September 29, 2022
Handed out? HANDED OUT!
Itās not being āhanded outā. Itās people keeping Ā£2 billion of their OWN money. They are not on the dole, you know.
September 29, 2022
“Handed out” ???
September 29, 2022
NS, where did you get the Ā£2bn figure from for the loss from 45% to 40%. I’ve been trying to find it. In 2016 when Osborne cut the top rate from 50% to 45% he claimed it had increased tax receipts by Ā£8bn but when fact-checked people said the highest earners deferred their earnings from the year before and although the cut didn’t cost anything it didn’t increase taxes either.
https://fullfact.org/economy/did-cutting-50p-rate-tax-raise-8-billion/
The fact check doesn’t say how much was taken in by just the 5% tax portion in 2012/2013, 2013/2014 and 2015/2016 then the following years, I’m not sure where I can find the actually amount just attributed to the 5% reduction.
But if it made no big difference to the tax take then why the freak out in the market over it, if people realise more of their taxes in the UK doesn’t this benefit the UK? There must be some benefit or why would they do it? This conservative government isn’t known for helping out the higher earners is it, the highest tax rates in 70 years we were told and that wasn’t the people under Ā£30k (the average earnings) as they were now being left to keep 45% of their income with the raised personal allowance, clawed back from the higher earners.
September 29, 2022
Sorry @a-tracy I can’t recall where I saw it. Whatever the figure it is a tiny amount of the whole and I was annoyed at the time that it distracted from the messaging. Everything else was pre announced and priced in.
September 29, 2022
Exactly. With the spending cuts put in place-and there was so much room for these-the market reaction wouldn’t have happened, bonds could have been sold by the Bank at higher prices and the BoE wouldn’t have had to bail out pension funds.
Our host praises the body shop for removing the massive dent in our car but does nothing to address the folly of the driver who smashed into a trail of vehicles in the first place.
All it needed last Friday was a cut in spending plan. Honestly.
September 29, 2022
As with Reaganomics,the cuts(or-trying not to laugh when I type this -“efficiency savings”) don’t materialize and the tax cuts are uncovered,resulting in ballooning debt.
September 29, 2022
Suggest you research ‘Fiscal Drag’ Mitchel
September 29, 2022
@PeterB
Maybe it will now be easier to reduce state spending against the background of the self inflicted “chaos” ?
September 29, 2022
Pay levels are going up too though, lots of public sectors, monopoly workers (like bus drivers and tube workers) are having massive pay rises, not funded by tickets but by subsidies (they are not being asked to make savings), the NLW went up 6.7%, the real living wage was put up by 10.1%! Boosting 390,000 + peoples wages. Ā£338m has gone to low-paid workers since Jan 2022 and more than Ā£2bn since 2011.
September 29, 2022
LL, perhaps the most pressing brief in that intray is the halting of HS2 – surely the most idiotic waste of taxpayersā money since the (scientifically unfeasible) Tracked Hovercraft Project of the late āKing of the Scilliesā.
Few enough would want to use it, certainly not I!. After the appalling carnage generated by the first 200 mph train smash – anywhere in the world – none would.
September 29, 2022
Not sure why you think we are going to have this ‘200 mph train smash’ whilst other countries with high speed rail don’t. The biggest problem with HS2 is the way it is being managed, like any project funded from the public purse it becomes a milk cow for those building it. In Birmingham they are putting a tram track down Digbeth High Street and they have been at it for about a year now; as you look from the window of your grid-locked bus in the contraflow system skating the edges you see groups of men in hard hats looking at mobile phones. As for the most idiotic waste of taxpayers’ money you have some way to go to beat the giant aircraft carriers without aircraft or the war in faraway Ukraine.
September 29, 2022
David Gauke being extremely unhelpful to the new Conservative government and money market issues already I see. Thank goodness he is no longer an MP. Are they all these people trying to destroy Truss already?
September 29, 2022
answer – YES.
September 29, 2022
Yes, I think that’s pretty clear.
September 29, 2022
Cutting waste, LL? Here’s a good place to start. An NHS hospital in Nuneaton has been spending the annual equivalent of Ā£138,000, to pay someone to monitor visitors at the entrance for face-covering compliance, and hand out masks and hand sanitiser. Apparently it doesn’t need the money to employ doctors or nurses.
September 29, 2022
Quite so R. Grange. And what about the de-commissioned oil rig in Weston Super Mare to be set up as an art project ? Estimated cost to the taxpayer 120 million pounds. You couldn’t make it up. No one would believe you.
September 29, 2022
Anyone would think she had a huge majority of loyal and sensible MPs on her side, LL!
September 29, 2022
Truss only got the support of 50 Conservative MPs in the first round. Even in the last round it was Sunak 137, Truss 113, Mordaunt 105, so it does not look like a huge majority of MPs to me, hardly a 32% support. Even with the Conservative members, 57% was the lowest majority that members had ever given in this type of elections.
reply Liz got a majority of MPs during the last round
September 29, 2022
What are you talking about Sir John? The last round of votes by the CUP MPs with results on 20/07/2022 had Sunak, Truss and Mordaunt. Mordaunt with 105 votes was eliminated leaving Rishi (137) and Liz (113) to stand for the six-week campaign and the elections by the CUP members.
How the MPs as individual CUP Members voted during āthis last roundā is not known and I am very afraid you are simply confused.
Reply During the last members round a majority of MPs declared in public for Truss
October 4, 2022
A bit less than two months later: it is interesting to see how this āmajority of MPsā who ādeclared in public for Trussā now behave.
September 29, 2022
LL, I’d put trainee medics on the wards again from 16, gaining BTEC/NVQ type qualifications whilst working rather than keeping them in school. I would start them on the less acute wards, change the name from nurse to attract more boys and take an even balance between the two and build new wards in every hospital to start to look after the bed blockers using the pods that were put into the Nightingale hospitals all 8,000 of them.
September 29, 2022
i have always thought that it would be a good idea if all people wanting to consider health / medicine a good idea if they all started at the bottom and continued learning throughout the years ( officially) with steps in the ladder created for different specialities and to match a direction they want to go forward with, but having ground experience.
September 29, 2022
margaret, it gives people a chance to change direction if they don’t like the full-on caring aspect of the job, the bedside manner, and helping a team. If it gave the 16-18-year-old a solid equivalent A level qualification but vocational, it could transfer into many different occupations from air stewards, nursery nursing at 18 and social work to physiotherapy, psychology and mental health, from medical equipment sales and manufacturing to first aid and health and safety, risk assessment work.
It’s got to be more beneficial than a travel and tourism qualification from school, provided by teachers who have probably never worked in that industry or a drama O Level; I believe some of the lower achieving children choose this A level/BTEC and just disrupt the people genuinely wanting and skilled/talented enough a drama career, the selection criteria isn’t as strict as the selection criteria for academic A levels but it should be done by audition and previous record.
September 29, 2022
Lifelogic
You still have an awful lot to learn about running a country
September 29, 2022
Stunning analysis billy.
September 29, 2022
So the Bank is acting politically? In effect, regime change using financial weapons of political war to discredit a nation’s leader.
Marxist Labour is also working with its coalition of disruptors to cause max inconvenience and engineer a crisis
The actions of the halfwits in Washington doesn’t help either.
September 29, 2022
Yes Dom, there are many of us not fooled by the moving of money from one place to another . Thye speak in gobspeak and arrogance thinking they know best and even put it in the context of helping the population in general . Then there are those who spue out false percentages ,parroting what they have been told , working with the information that they have read rather than the real figures and even claim intelligence as they go along with the trillionaires.
September 29, 2022
The Bank is doing what they are charged with doing – protecting the economy and enabling stability. Instability caused by this government’s actions and decisions.
September 29, 2022
The half-wit in Moscow, damaging major reliance on food and energy, on a personal crusade to go down in history as another Peter the Great is another big problem.
September 29, 2022
He’s actually providing food and energy to many parts of the world that were short of them(including -as announced a few days ago- Afghanistan)-but no longer to the west other than on his terms.
Peter the Great turned Russia West,he’s reversing that;the East is the future;the West is dying.
September 29, 2022
Mickey. Yes he is but he wouldn’t have been such a pain in the arse if we and Europe had been self sufficient in reliable energy. Back to net zero again and all that crap.
September 29, 2022
Good morning.
So the solution then is to re-nationalise the BoE is it ? Somehow I don’t think so.
š
September 29, 2022
Well it might help if next time they appointed someone rather less grossly incompetent than 39.9% personal overdraft rates for all Andrew Bailey or pusher of endless green crap Mark Carney.
September 29, 2022
Perhaps even some one numerate who understands banking, risk reward & economics?
September 29, 2022
It was a bit stupid to have the BoE meeting a day before the mini budget rather than a day after it. There are a lot of elements to the stupidity of this situation and both BoE and government are complicit.
September 29, 2022
+1
September 29, 2022
Very true Joe – but we are where we are (and would have got there pretty soon anyway)
September 29, 2022
Lifelogic
Please stop writing
September 29, 2022
Yes do as billy says Lifelogic
Let bill be the only one one on here who speaks.
EU style democracy writ large.
September 29, 2022
I guess you will be the only candidate, impeccable qualifications, never wrong.
September 29, 2022
I was probably very wrong to have been conned into taking these rather ineffective and often very dangerous vaccines. This due to travel restrictions and the totally dishonest claims of 80%+ effectiveness and proven safety.
Luckily no side effects unlike one 20 year old unlucky lass I know who now has heart issues following her booster shot. Plus she had already had covid with no issues anyway. What on earth were they jabbing her for?
September 29, 2022
I too have had heart issues since my booster shot, Lifelogic. I have declined having another.
September 29, 2022
It is spoke that 2 in every million will develop myocarditis . I have recently undertaken 3 modules in Pzifer vaccines and Moderna vaccines for children and adults. You have to understand that all vaccines can have side effects , but you yourself was talking re herd immunity at one stage where left to Sars own devices would have caused far more deaths than the unfortunate myocarditis sufferers. The vaccines all have the original mRNA of Sars 2 with the protein spike . This is like a base which underlies the evolving strains and can lessen the intensity of the effects of the disease.
September 29, 2022
@ margaret – The statistics seem to show that the loss of quality years lost through vaccine side effects far exceeds the benefits of the vaccines. For the young this is most certainly the case. Denmark have sensibly stopped vaccination under 50s. The after effects of this mistake and the clearly quite dishonest claims will also kill more people by making people mistrust other safe & effective vaccines less in future.
September 29, 2022
‘What on earth were they jabbing her for’, LL? For Ā£30. That’s the going rate the practice gets per adult injectee, I gather.
There were so many snouts in the vaccine trough, it’s not surprising it took a long time for concerns to be publicly discussed. So it was difficult for you to avoid being nudged into taking the jabs.
I would not hesitate to continue to take normal vaccines, and I hope other people wouldn’t either. Because of their lack of proper trialling, the Covid jabs were surely exceptional, and they should not give vaccination, practised at least since the 19th century, a bad name in any way.
September 29, 2022
@ excalibur – very sorry to hear that have you been able to get full investigations on the NHS in a timely manner? My friend has had to spend about Ā£2000 to get this done so far due to huge NHS delays. This for something they caused.
September 29, 2022
Well would do it for nothing – except I would not want all the public attention on myself, my family and businesses and also if I had to move to the UK and become taxable resident there it would cost me a seven figure sum PA and I would also come into UK IHT when I died. Plus would end up spending even more hours with tax planners and lawyers. Also they would never want me.
September 29, 2022
They seem to like History grads not Maths Physics % engineering people JR would do a good far better job just in his spare time.
September 29, 2022
Of course he would do a far better job just in his spare time, in any of the departments or in no 10. And he is an historian.
September 29, 2022
@ rose – yes originally but a bright & sensible one with lots of business and other experience.
September 29, 2022
The BoE is nationalised, 100% owned by the Treasury.
September 29, 2022
Er? The Bank of England was nationalised decades ago.
September 29, 2022
So how can it therefore be independent ?
Sw and acorn. Don’t any of these people in government, Whitehall and Threadneedle St. ever talk to each other ??
September 29, 2022
I note that the Daily Mail comments criticising the recent tax cuts were all made between 2am and 4am in the morning. The comments are nearly all saying that Government spending and welfare has been ācut to the boneā. Presumably these comments are made by some of the 3.5% unemployed who donāt need to go to work in the morning and arenāt smart enough to figure out how to cut the billions on WOKE jobs, subsidies and overseas projects.
September 29, 2022
Indeed. Any job with Diversity in the title should be first on the block. A guess would be 50 percent of state jobs could go without being noticed.
September 29, 2022
Before that, they need to get rid of all the laws they created which creates in turn these non-jobs. They are only following government orders.
September 29, 2022
and 100% non-productive doing their utmost at times to make even more people unproductive!
September 29, 2022
And don’t forget Ukraine.Their 2023 budget ,just released, requires “external funding” of US$ 38bn.
Get yer wallets out.American Excess will do nicely!
September 29, 2022
Universal credit AET adjustment – “Since its introduction in 2013, the AET has not kept pace with the increases in the National Living Wage, with the result that the number of hours needed to work to earn the AET has fallen over time. The adjustment will bring the AET back to its original āparityā with the National Living Wage.” Source https://www.gov.uk/government/publications/ the Administration Earnings Threshold (AET)
Perhaps they don’t want to work more.
September 29, 2022
Maybe the people making these comments are in a diferent time zone?
September 29, 2022
Yes, “…others will agree with them” but only of course because they know they have no choice, that Central Banks have the power to rig the market. Historically and artificially low interest rates for so long has harmed risk allocation as well as savers: it is past time interest rates increased, as a diary post some six years ago proposed.
September 29, 2022
Mortgages rates are still relatively low. There’s only 8 million mortgages in this country, the problem is not the rates it’s the cost of houses caused by the conservative polices.
No one wants high rates just fair rates. The coalition and conservative s have threw savers under the bus since 2009 and not one comment in the news about the millions of savers who have been ripped off by the Conservatives.
The price of homes are expected to go down by 30% next year, it just goes to prove with reasonable rates house prices will drop.
September 29, 2022
“the problem is not the rates itās the cost of houses caused by the conservative polices.”
Problem of rising house prices was driven by cheap money. If people can borrow more they will and then they outbid other buyers to inflate prices. The cheap money policies started before the Tories gained power. We should have seen interest rates back at 3% in 2010 – would have prevented much of the current worldwide economic pain.
September 29, 2022
I agree
September 29, 2022
Problem of rising house prices also a result of second homes and holiday lets, some bought by overseas investors. But then the government likes all that stamp duty and foreign investment. Local people not being able to afford a place on their wages was and still is a price worth paying as far as the government is concerned.
September 29, 2022
Agreed. Which is why I said recently that the government should make it illegal to sell property less that $500k to non UK citizens illegal.
September 29, 2022
The Conservatives policy of help to buy , it is now accepted that the policy increased demand for homes combined with ultra low rates forced the increase in house prices. There were many other factors that cause prices to rise such as builders holding on to land awaiting land prices to rise.
September 29, 2022
The usual nonsense about savers. The average amount in savings accounts is less than Ā£1000, so even a five percent hike would pay them a whole Ā£50 a year, wow.
For as long as I have understood investment it has been accepted that savings in cash are the worst, inflation eroding their value, so for rainy day liquidity only.
September 29, 2022
Many people don’t understand equity markets and rightly avoid them, prefering simple savings accounts for their money (and quite right too). They are often older folk who need to top up pensions and who cannot take short term risks. They have clearly been one of the victims of this very deliberate interest rates supression over the last 15-20 years.
September 29, 2022
For the past year I have been boring my extended family and friends telling them to get 10 year fixed mortgages which were at just under 2%, Now they are at least double this rate. Indeed 10 year UK guilts are 4% mortgages will be higher than this. Costing them at least 20% more of the borrowings over the ten years, but still perhaps worth it.
The UKs rip off banks still only paying about 0.4% on instant access deposits in the main & then charging 100 times this on overdrafts! Thanks to the FCA and Bailey it seems. Do we not have a fair completion authority in the Uk or are they all asleep? Pension & annuity funds have been forced by gov. regulation to buy guilts which have now dropped hugely in value giving them a bit of a headache. In effect yet another tax on pension savings through regulation of their āinvestmentā choices.
September 29, 2022
“For the past year I have been boring my extended family and friends ….”
Surely not?
September 29, 2022
Well two did follow my advice and have probably saved about Ā£120K
September 29, 2022
I did much the same (advice on long-term fixed rate mortgage) but mostly got ‘but the redemption penalty makes it unattractive’. The maths seemed to stop at 2 years out, no consideration for the very likely market nightmare beyond that. Oh well experience falling on deaf ears again.
September 29, 2022
But they are usually transferable if you move.
September 29, 2022
I see you have a personal troll Lifelogic.
September 29, 2022
House prices will not go down by 30%. Whenever the economy is in such a state that people cannot get the inflated price they think their property is worth, they donāt sell. Only distressed sales take place and there are few of them. What does happen is that transactions collapse but prices only go down a little and then stick. Until the next boom.
September 29, 2022
Flats tend to go down more than houses as people buying a larger flat or a house are not so affected by a lower sale price if they then save more on the new purchase. They also tend to be kept for less time. But the whole market is hugely damaged by vast stamp duty rates above about Ā£700k. Up to 15% when they used to be just 1% this is an absurdly high rate for a turnover tax.
September 29, 2022
The tax is charged in ranges upwards. Below Ā£250k zero. Now up to Ā£925k the highest rate is 5%. Above Ā£925k bracket will be 10%, increasing to 12% above Ā£1.5m.
As always there are differences in the rates in the circumstance of the buyer.
September 29, 2022
Not sure that’s true Mike.
You have Estate sales, Negative Equity sales, Landlord Sales and people who simply have to move to stay in work (yes, that is coming too). So yes, I think prices will have to drop – by how much, who knows.
September 29, 2022
@IanT
It’s only happened once in my lifetime – in the late 1980s and early 1990s – following the idiotic announcement, 6 months in advance, that joint mortgage tax relief was to end. People were advertising in the papers for anyone to buy a property with them – anyone, complete strangers – just so they could get the joint relief before it went. It poured petrol on an already overheating housing market due to the inane Tory government relaxing credit restrictions on mortgages. The days of saving with a building society for 2 years and getting in line for a mortgage disappeared in the mid 1980s and there was a lending free for all.
That said, even then it only really affected London and the South East. The rest of the country did not have the boom or the bust. There were a lot of repossessions. Now, the idea of repossessions is so politically toxic that more bailing out will be done to keep the housing market balls in the air. I mean, they’ve just cut Stamp Duty. It’s what they always do.
September 29, 2022
I don’t beleive that (the apparently very bright) Mr Kwarteng didn’t know that higher interest rates were inevitable in the short term (as that is what the Fed is forcing on the World). So my reading of the Stamp Duty changes, is that they were possibly designed to soften the dip in the housing market that they knew was coming. They also know a recession is coming, so they are trying to lighten the tax load before it fully hits. The 45% could have waited till November but I guess they decided to make a splash – and certainly succeeded with that! š
September 29, 2022
Stephen, the new order will never save savers, they all class it as unearned income, and if savings rates go up, the taxes on unearned income from savings accounts will go up near income tax rates. They’ve been threatening it for years.
The new mortgagees aren’t taking mortgages based on 3 x 1 income and 1 x the other, they are taking multiples sometimes 4 x both incomes, then if one is sick with no sick pay or takes a year out to start a family, they are immediately struggling.
September 29, 2022
The taxes on unearned savings income is already 20% after the first Ā£1000 which is current taxed.
September 30, 2022
Stephen, I thought pensioners didn’t get taxed on their savings unless they’d used up all their personal allowance? We keep being told by the newspapers that it is mainly pensioners relying on savings to top up their Ā£9500 pa State pension.
September 29, 2022
I have worked on trading floors for 30+ years. I worked at one of the two large global banks on the Credit Derivative system during the 2007 crash who came out unscathed because they didnāt use risky, US mortgage backed assets as securities.
The fragility of the bond market is ENTIRELY due to 10 million final salary pension schemes using Gilts and AAA equities as collateral to buy higher risk equities. About 75% of these pension schemes belong to civil servants. When interest rates rise the pension funds must liquidate assets to meet collateral requirements.
Civil service final salary pensions now threaten our entire Government finances. These high risk pensions must be stopped immediately or the Hedge Funds will smell large profits and repeatedly press the pension funds resulting in huge Government liabilities to pay these pensions. When I say stopped I mean cashed out. When I say cashed out I mean civil servants need to be retired immediately.
September 29, 2022
+1
September 29, 2022
+1
September 29, 2022
Javelin:
I have a close relative who works at the coal face of the Civil Service.
As far as I know, there are no longer any final salary pensions, they were amended several years ago. I get very fed up with hearing about āmassiveā salaries and āgold platedā pensions. As far as I know, the work is stressful (shortage of staff) and not very well paid, even in London. In the higher echelons maybe, but at the lower end, nothing could be further from the truth.
September 29, 2022
The civil servants pensions are defined benefits not defined contribution, they are much more costly and at risk as Javelin explained, they may no longer be as diamond as ones from a decade ago but they’re still streets ahead of NEST and other private pension savings schemes for the same 6-10% contribution those individuals get no guaranteed returns at all, the returns will be small without the transfer values.
As you say the people in the civil service aren’t told how much those pensions are actually worth so don’t value them. I’d offer them better pay today and NEST. Then when salaries are being compared the true value is revealed.
September 29, 2022
CG,
Very true about so-called ‘gold plated’ pensions.
As George Carlin said ‘… and now they’re coming for your retirement money! It’s a big club and you ain’t in it!’
September 29, 2022
Still very much FS arrangements for MPs + host of other public sector workers,
September 29, 2022
From the Civil Service Pension website:
“We work out your pension as 1/60 of your final pensionable earnings for every year of reckonable service in the scheme.
Example
Mohammed leaves premium after 20 yearsā reckonable service. His final pensionable earnings are Ā£18,000 a year.
Mohammedās premium pension
= 1/60 x 20 x Ā£18,000 =Ā£6,000 a year.
The maximum length of reckonable service that can count towards your pension is 45 years.”
https://www.civilservicepensionscheme.org.uk/knowledge-centre/pension-schemes/premium-scheme-guide/how-your-pension-is-worked-out/
Where, in the private sector can you work for 20 years and then receive a salary-based pension which is increased every year in line with inflation?
September 29, 2022
I’m always struck by those ‘Grade 7’ adverts, for quite meaty roles, offering just Ā£55K – about what a Lt Cdr might make, and only twice what some London waiters might get.
September 29, 2022
Any chance of explaining that in words a five year old would understand please?
I have assumed that, for example, someone working for, say, a local council pays in a % of their salary and their employer does the same into a pension fund managed (presumably) by one of the big pension fund managers. They invest the money in gilts, corporate bonds(?), property and equities – things they perceive as safe – and the fund grows. When a fund member retires a chunk of money is liquidated from the fund and used to buy an annuity from one of the giant annuity providers.
Iāve always been puzzled how an annuity provider can guarantee an income to someone – possibly index linked – for the rest of their lives. Where do they invest the āpension potā they are given when someone retires?
September 29, 2022
all based on gambles….
September 29, 2022
Mike
Surely all annuities are based on life expectancy are they not.
Live for about 20 years and on average you get your fund value back, (problem is annuity market rate varies) on a drip drip year by year basis, so by those sort of calculations, those who die early, pay for those who live longer.
The company makes the profit (it’s return) on the whole of the lump sum immediately invested year by year over the same number of years invested.
Many variations on a theme for the majority, but those fortunate to be on a defined final salary scheme fare much, much better than the majority, as their return is guaranteed and are not affected by market rates.
September 30, 2022
They constantly make mistakes Mike with pension investments but they donāt suffer, one local housing trust just popped Ā£9.6 million from the rents (Ā£32m pa, just two years before they popped Ā£8.6 million in) residents paid into their pension scheme in just one year.
The local Council invested in Icelandic banks that took their investment down, they made it up with rate payers money millions and millions.
September 29, 2022
This is another way of saying that the government is too big and intrusive. It needs to be cut down to size. Never too late to start doing so.
September 29, 2022
@ Javelin – Why please are pension funds ” using Gilts and AAA equities as collateral to buy higher risk equities” rather than just buying the equities direct? The economic effect is the same surely, and it defies belief that regulators would be fooled.
September 29, 2022
Helpful post, one of the few, thanks.
If pension funds are leveraging their ‘safe investments’ to buy risky investments, why didn’t they sell the risky ones first? They were looking at huge losses on long gilts, surely more than on the ‘high risk’ investments?
I smelled a rat in the ‘establishment bretheren’.
September 29, 2022
It’d be interesting to know who’s at the end of this daisy chain. Promises are only valid within the solvency of the promising institution. Remember Equitable Life? Caveat emptor.
September 29, 2022
I’m puzzled – I thought the problem was with margin calls on LDIs – not the actual Gilts themselves
As to Public Sector Final Salary (Index linked) Pensions, I thought much of this was unfunded debt (like the State pension?) and underwritten solely by the Government? Always happy to be proved wrong of course.
I certainly do agree that final salary pensions are no longer affordable in the Public Sector (they are generally not in the private one for sure) and should all go to Money Purchase schemes soonest – including MPs of course!! š
September 29, 2022
Yeah, right. LIke MPs will ever allow anything other than the most gold plated of gold plated schemes for themselves. They deserve it. They work soooooo hard.
September 30, 2022
Or a Ā£1m valuation cap imposed on defined benefit pensions. Excess taxed away.
September 29, 2022
Although I’m broadly supportive of the new government’s economic thrust, recent days have made me feel that Truss and Kwarteng put no effort into ‘wargaming’ their mini-budget policy and what would happen in its aftermath. They must do better!
The IMF? It added to market turmoil. We should consider leaving that very political organisation.
September 29, 2022
Thank goodness Truss & Kwarteng didn’t get Neil Ferguson to model the budget on his computer, S_W!
Or did they?
September 29, 2022
Put simply ,assets which are sold off , along with businesses out of the UK , along with anything which gives stock power should ride the storm . Giving power away has been the detrimental political and financial factor for the last 40 years.
September 29, 2022
and water and transport renewal.
September 29, 2022
It is impossible to escape the conclusion of government incompetence even if the direction of travel is a sound one longer term.
Thinking that an un costed Big Bang announcement, both potentially inflationary and increasing an already large deficit, so asking the Market for ever larger funding without cutting budgets would not cause disruption was naive at best. Allegedly you have been advising MsTruss, incidentally where us she/showing zero leadership, so am surprised at you.
Sir Tom Scholar must be laughing all the way to retirement and his severance package.
September 29, 2022
Nigl :
Sir Tom Scholar should have been sacked when his team at the Public Accounts Committee evidence session on Net Zero on 17/11/2021 were unable to give the Committee any indication as to the cost of Net Zero.
In answer to Q97, they could only answer :
āIn the interim report of the net-zero review we had a chapter that talked about these kinds of cost estimates and their shortcomings. We also critiqued the CCCās estimate, not because we think it is terrible but because there are lots of heroic assumptions in any estimate of this kind, where you are thinking about a period of 30 years and technologies that are going to change dramatically.ā
September 30, 2022
It was Scholar and his no 2 who chose Bailey for the Bank, it being Javid’s first day.
September 29, 2022
Thanks for your explanation John,
But surely you get this sort of financial chaos when you try and play clever with your finances, printing funny money, supporting what are almost fake accounts (manipulating and purchasing your own debts) running an ever greater number of ponzi schemes (pension funding, and ever increasing benefits, and debts), ignoring the balance of trade figures, and manipulating interest rates to unrealistic levels, all because you cannot work to and within a sensible balanced budget, where income should always be greater than expenditure (without constant tax increases).
All governments over decades have been the same, all have refused to understand the very simple basics that you have to live within your means, otherwise the day of reckoning will eventually come, and smack you in the face.
Has that day arrived yet ?
September 29, 2022
These technocratic screeds just won’t cut it when winter comes and millions can’t afford heating, Sir John.
Oh, and come back Black Wednesday, all is forgiven, eh?
September 29, 2022
My domestic gas supplier is paid via monthly Direct debit. In March it was Ā£92 then it rose to Ā£162, now from October it will be Ā£240. Similarly with electricity. I keep hoping my State pension is going up by 57% then shortly after another 50%. The shivers have started already. It will be a long cold winter. I’ll have to get used to living on beans on toast and soup.
September 29, 2022
So overnight markets improved on the announcement that the Bank of England would print Ā£65 billion to buy bonds for previously printed government debt.
For the last four days markets have been selling based on the announcement that government would print (through the Bank of England) between Ā£200 and Ā£300 billion to finance gas and electricity price subsidies (the major part of the spending) and to not take as much money from those that earn it.
So it appears that the markets care little amount the money printing, it is mostly where the proceeds of that money is going? That is fine and to be expected but the media reporting needs to reflect that this is all about making financial institutions money and nothing to do with commentary on policy. The banks purchasing of these bonds does not effect economic policy.
September 29, 2022
Money printing to sustain asset prices that are unrealistically high-and in many cases are worthless.Repeat and rinse since the crash.
It is what Vladimir Putin was referencing a few months when he said the “economy of imaginary wealth is being replaced by the economy of real,hard assets”.
September 29, 2022
Although the mini-budget measures looked broadly sensible to me I canāt work out why truss and Kwarteng felt the need to rush it out rather than present it in a more sober way together with the other measures at the normal time (Nov). Ie announce it with the supply side reforms and presumably the spending controls (I doubt there will be any actual cuts unfortunately). At the very least the management of this has been politically incompetent. Of course what will matter in the long run – ie for the election – is whether the policies work. But this all looks like a political own goal to me. Rishi might not have had the radical free market zeal but I donāt think he would have presided over a balls up like this!
September 29, 2022
Epic levels of gaslighting today, putting this economic shit-show on the BoE.
Red Wall Tory MPs should cross the house now if they want to keep their jobs.
September 29, 2022
Even more epic levels of gaslighting from Truss on local BBC stations today..
‘We are working closely with the Bank of England…’
‘No-one will pay over Ā£2500 for their energy bills..’
‘We have reduced inflation by 5%…’
She is truly awful. The UK is now an economic basket case.
September 29, 2022
I can’t believe I am writing this….I would be very happy to only pay Ā£2500.
September 29, 2022
How big is your house? With the increase coming in October – minus the Ā£400 off – I reckon I’ll be paying about Ā£1500.
September 30, 2022
lucky you. We converted a house 30 years ago into a decent 4 double-bed, on a good plot.
Is that reprehensible to aspire to? Being essentially an older property – solid walls and the fact we both take blood thinners – we feel the cold.
September 29, 2022
If you use will more than Ā£2500 of energy you will have to pay for it. Those who think you can use Ā£4000 of energy and only pay Ā£2500 are deluded, search Martin Lewis he says the same thing only this morning.
September 29, 2022
Sir JR
Interesting perspective but according to my information the BoE had little choice yesterday. The belief that inflation will fall significantly next year looks doubtful
September 29, 2022
I understand the principle of bonds. If interest rates go above the coupon the bond price goes down and vice versa. So if a Ā£100 bond pays 1% and you can then get 2% by putting your money in the bank then, other things being equal, that bond would only be worth Ā£50 if you wanted to sell it before maturity.
What I donāt understand is why, currently, pension funds are āforced to sell bondsā. Why donāt they hang on to them until the date they are redeemed?
And, if they are so clever, why did they buy 30 year bonds with a 1% coupon in the first place? Surely any half-wit could postulate interest rate rises – at some point – that would make those bonds almost worthless.
Reply Because they geared their positions and now have margin calls
September 29, 2022
It was, and possibly still is, incumbent on pension providers to have a store of government bonds to cover their basic pension commitments, thus the government always has a buyer for some of their borrowings. They are forced to sell their bonds when they need cash to cover losses on other investments e.g. thinking that the Ā£ might maintain its value.
September 29, 2022
A good question Mike. Pension funds traditionally invest for cash income to support the cash payments they make to pensioners. Government Bonds (conventional not indexed Gilts) are savings certificates that are “risk free” and pay a cash interest (coupon) that the Treasury does not change throughout its life or the value it is redeemed at. They do not finance government spending. The government does not “borrow” back, its own monopoly money today, that it issued yesterday; it can create as many Pounds as it needs, brand new, daily.
My question is, why does the regulator allow pension funds to buy government bonds on a broker margin? https://www.investopedia.com/terms/m/margincall.asp See how a drop in value triggers a margin call by broker.
BTW. The BoE did not BUY Ā£65 bn of government Gilts, it has little capital to BUY anything. It SWAPS gilts back into the cash that bought them originally. It just moves the content of the bond from the government’s Securities Account to its Reserves Account; the sum total of the two accounts remain the same. No new money was created or printed. The net currency in the non-government economy does not change.
September 29, 2022
yeah about as valid as Monopoly money.
September 29, 2022
Mike. The interest going from 1% to 2% does not halve the value of the bond. it would follow a “convexity curve”. https://www.investopedia.com/terms/c/convexity.asp#:~:text=Convexity%20is%20a%20measure%20of%20the%20curvature%20in%20the%20relationship,said%20to%20have%20negative%20convexity.
September 29, 2022
No, I realise that – that it is dependent on how far from the redemption date it is. But I read yesterday of bond prices halving. Did they?
September 29, 2022
Listening to R5L this morning, I was truly alarmed by the talk of ‘margin calls’ being given to insurers. Perhaps gilts have too great a place in the investment mix of our pension schemes. This investor saw no reason to hold them when rates were low – and even less reason now interest rates are going up. Perhaps I’ve missed something.
September 29, 2022
The margin calls aren’t on the Gilts as such SW – they are on the LDIs (derivtives) that the funds have been using to boost income. Gilts are held because they are very risk free – you buy a 30 year Gilt, it pays a coupon and in 30 years you get exactly what you paid for them. Of course the Gilt price and effective % interest paid varies over that 30 years. All bonds also start to revert to face value as they near their redemption point.
So the only risk is in the loss of value caused by inflation but generally they are much safer (more predictable) sources of income than equities – or at least are normally unless you artifically keep interest rates low over a long period and devalue your FIAT currency through endless money printing.
September 29, 2022
Pension schemes were forced to hold bonds to cover their liabilities.
Private workers pension schese were trashed by Gordon Brown and the process has continued under the Conservatives. No problems for MPs pensions though, or public workers generally.
September 29, 2022
The Treasury, Bank of England and a majority of Tory MPs didn’t support Truss for Leader; they wanted their tame lapdog, Sunak, who would carry on following the socialist group-think model they’ve been using for the past 25 or so years. I can’t be the only person who thinks the current turmoil is at least partially caused by a lot of very spoiled children throwing their toys out of the pram.
Meanwhile current electricity provision, UK:
Gas: 20.3
Wind: 3.5
Solar: 0.2
Well it’s obvious …. we need to scrap gas and increase the number of windmills and solar panels. I’m sure Chris Skidmore will reach that conclusion (again) when he’s carried out the review of his opinion.
September 29, 2022
@Donna; Oh right, so all the turmoil in the markets, not just here in the UK, since last Friday is down to a grand conspiracy to get rid of Liz Truss, not reaction from a crass unthinking set of announcements… š
September 29, 2022
Where did I say ALL the turmoil is due to the spoiled brats in the lefty Establishment throwing their toys out their prams?
I was very careful to say AT LEAST PARTIALLY CAUSED by them.
Comprehension not your strong point at school?
September 29, 2022
@Donna; Are you seriously suggesting contagion wouldn’t happen, otherwise what other possible fiscal event(s) and in which markets set the worlds FX boards turning red on Friday?
How would your suggested conspiracy work, given those with enough (market) clout are likely to be the very people you call “very spoiled children” and Liz Truss is helping the most, turkeys voting to Christmas seems very unlikely. So unless you’re suggesting foreign interference…
Having a clue, not your strong point at school?
September 29, 2022
Jerry argues on here as a hobby Donna.
Best to ignore it.
September 29, 2022
@P2; If only YOU would ignore me!
September 29, 2022
Yes that would really suit your efforts on here with yout endless pedantic waffling posts Jerry
September 29, 2022
@P2; In other words, in your opinion, decent must not be allowed, debate must not be allowed.
Your comment tells us far more about yourself and your politics than it does mine. Ponder this P2, tonight a YouGov/Times opinion poll puts Labour 33 point ahead of the Conservatives, that’s an awful lot of people who have already given up on the party; carry on sticking your head in the sand though…
September 30, 2022
Two years to an election Jerry.
80 seat majority is a difficult one to overturn in one election.
I’m looking forward to future posts from you which are full of decent polite debate.
September 30, 2022
Peter 2
I thought you were the expert in waffling without content. Jerry remember Peter 2 has spoken
September 30, 2022
Ah my personal troll billy with an N speaks.
Not too many facts and data there billy.
Hilarious.
September 30, 2022
@P2; “80 seat majority is a difficult one to overturn in one election”
Here we go again… Stop waffling Peter, all you do is show your total ignorance.
If the Tories loose just 40 seats it means they loose their majority and are out of govt, that is very easy (see below) and as for that opinion poll [1], yes the Conservatives might recover some lost ground over the next 2 years but bare this in mind, in the 1997 election Con lost 178 seats, on less of a swing…
Relevant post war elections;
2019 Lab lost 60 seats
2010 Lab lost 91 seats
2005 Lab lost 48 seats
1992 Con lost 40 seats
1983 Lab lost 60 seats
1979 Lab lost 50 seats
1970 Lab lost 70 seats
1966 Con lost 51 seats
1964 Con lost 61 seats
So far from being “difficult” as you claim, historical facts SHOW it is actually quite common to loose 40 seats. Do you actually understand electoral majorities?!
[1] judging from media reports, some Tory MP’s were distraught last night (Thursday)
September 30, 2022
Gaining 40 seats won’t get Labour a majority.
October 1, 2022
@P2; “Ah my personal troll billy with an N speaks”
Oh diddums, perhaps YOU now know how others feel about YOUR constant trolling, sans any facts and data.
“Gaining 40 seats wonāt get Labour a majority.”
I never said it would, what I said was, it would wipe out the Tory majority!
As Mrs May found out in 2017, and as David Cameron (2010) and Harold Wilson (Feb ’74) found out before her, a party doesn’t need a majority to be invited to form a govt, they just need to have a large enough share of MPs. The questions that then arise are which other party or parties might have the numbers, and be willing, to shore-up such a minority govt. So which likely parties, and by how many, formally or informally, would likely shore-up a Tory/Truss lead govt, which would shore-up a Labour/Starmer lead govt?
But on the sort of swings towards Labour suggested by opinion polls in the last week those questions would not arise, the figures point towards a 1945 or 1997 style landslide.
October 2, 2022
How does losing 40 seats when you have an 80 seat majority get Labour a Parliamentary majority.
Two years until the next election Jerry
Keep calm.
Losing an election when the government has an 80 seat majority is a very unusual thing and very difficult for the opposition to achieve in one election swing.
September 29, 2022
Donna the Sunak gang are making a show of themselves not supporting the party that supports them by attending conference, by briefing against the party at any opportunity. Don’t they see that it makes them look like sulky children? Thank goodness they didn’t take over, and I was ambivalent either way the Tory members voted.
I believe most of the public can’t stand back-stabbers.
September 29, 2022
@a-tracy; Oh diddums! So what if some people are “briefing against the party at any opportunity”, much the same happened during John Major’s [1] and David Cameron’s tenures as PM, & it was still happening during May’s time. If some do not like being on the receiving end then perhaps they should first treat others as they want to be treated themselves, or perhaps better still get the hell out of the kitchen.
[1] how did Major describe them, oh yes, by questioning their ‘parentage’
September 29, 2022
Skip jerry
September 30, 2022
@a-tracy; Lost for a reply are you?…..
September 30, 2022
childish remark. Try to hold a grown-up debate.
October 1, 2022
@MT; Well perhaps, although I would call it ‘cutting’. But then, if others play child like games, rather than hold a grown-up debate, when in Rome do as the Romans do…
September 29, 2022
Tracy
I will bet you will get another stroppy post back from Jerry.
How dare you argue against the sage of this site.
September 29, 2022
The Conservatives, aka New Labour mark 2, trash the economy. Far left Labour are waiting in the wings to do the same thing.
Meanwhile, how many rubber dingies will arrive on our shores today, packed with useless people heading for a life of free everything ?
September 29, 2022
The B o E is at last, as you say Sir John, trying put right some its recent mistakes. This is receiving far more publicity than it would normally get because the BBC, Sky News and others see this as an opportunity to spook the public as they did when we were short of tanker drivers. It is not working as the detail goes clean over the head of the public and we haven’t suddenly plunged into debt as the cost of the tax changes apart from the reversal of the NI don’t come into effect until well into next year. By that time some new green shoots may well be showing.
Truss and her team got it right by announcing the measures to alleviate the cost of energy this winter for both households and business first
Furthermore, those promoting creeping control over the populations of the West are using every means to stop our plans for growth because they know others will follow us. The shift to the right in Poland, Italy etc is growing and in time their plan will fall apart. Rishi was under their spell and there are still quite a lot of ardent Remainers in Westminster supporting this movement, so thank heaven he lost the PM election
September 29, 2022
Off topic, I have a short letter in the Belfast News Letter today, although not under the heading I suggested:
“Guess which side will back down”
“Three weeks ago Simon Coveney publicly declared that whatever happened Northern Ireland must forever remain part of the EU Single Market for goods.
While the UK government’s proposals for reform of the Northern Ireland protocol all require that Northern Ireland should no longer be part of the EU Single Market.
Now there is rising optimism that a deal can be negotiated, so clearly one side or the other has indicated its willingness to back down; I think I can guess which side.
If you choose to publish this letter, I suggest that “Another Tory cheat on the way” could be a suitable heading.”
JR, please can you suggest any fresh way that I could try to get it into governmental heads that while the EU checks and controls are being applied to the wrong flow of goods, that is the imports coming into Northern Ireland from Great Britain, the EU is compelled to insist that the province must stay in its Single Market for goods because notwithstanding the misleading BBC graphics something like half of the goods crossing the land border from Northern Ireland into the Irish Republic have not come in with that flow of imports, instead they have been produced locally, that is to say within the province? So the only correct answer is to move the customs border back to where it used to be and where it properly belongs, along the line of the international frontier between Northern Ireland and the Irish Republic, and apply export controls.
September 29, 2022
Denis.. yes it only remains for to give the DUP a chance to climb down and save their blushes.
September 29, 2022
The customs border is not going to move- the US and the EU won’t allow – so not a chance.
Also I understand that it is already agreed that NI will remain in the SM for goods
Any difficulties can be negotiated out – Lord Frost agreed to all of this before.. so did Boris and the House
Am I right or… am I missing something?
September 30, 2022
Yes, among other things you’ve missed this:
http://johnredwoodsdiary.com/2022/09/22/new-management-should-take-a-fresh-look-at-the-nhs/#comment-1343411
“Leo Varadkar irresponsibly used the implied threat of renewed republican violence to get the UK-EU customs border moved away from its proper place, the international frontier between Northern Ireland and the Irish Republic, and they are using the threat of unionist violence to get it moved back to where it should be.”
September 29, 2022
IMF have another controversial ex-EU Commission anti-Brexit political Britain hater and Gordon Brown economic follower to quote DT:-
“Kristalina Georgieva, who took over from Lagarde in 2019 after a stint as chief executive of the World Bank, has not been without her own controversies either.
The Bulgarian former eurocrat, who served as a vice-president in Jean Claude-Junckerās EU Commission, was forced to defend her reputation and reportedly fight off what some economists described as an attempted coup at the IMF.”
She was formerly very briefly head of the World Bank where she controversially lobbied for China funding. That tells me to be wary when you are “promoted” to another post quickly.
The hypocrisy of these Captain and now General Hindsight critics complain about the need to tax less to grow the economy more.
September 29, 2022
Have half the Tories and the Institutions of the Capitalist World have gone MAD ā¦.theyāre actively promoting nee demanding the reversal of tax cuts ā Whatās happened to the mainstay of the Tory party being the party of lower taxes
September 29, 2022
it used to be reluctant to spend on social services and undisguised benefits.
September 29, 2022
“The Bank of England yesterday after a bruising few days for them”
Not at all, just a bruising few days for the GOVERNMENT, for the PM, for the CHANCELLOR.
We all know Rishi Sunak warmed us, he stood up on prime time TV and said so during the leadership contest, ‘Liz, your polices will crash the economy’ he told us, but now as the hours pass into days since last Friday’s “fiscal event” it has become clear many within the corridors of Govt, people in our hosts own party, for all we know perhaps even our host himself (?), warned the PM and Chancellor that their un-costed economic announcements would spook the markets, and not just here in the UK. Our host tell us we need to see the full plan (suggesting he has seen the full plan…), perhaps, so would it not have been better to have held off on having that “fiscal event” until the full plan could be announced, after all there is usually an autumn statement in Nov, if not a full budget.
Mr Redwood, might fool his unthinking posse of dotting fans on this website but he is not fooling anyone else with his constant attempts to pass the buck buck from Downing Street, even the supporting opt-eds in the Tory press lie behind damning front page Headlines and editorials.
I wonder what odds are being offered on two simple bets;
Will Kwarteng still be Chancellor come November
Will Truss still be PM come Christmas
September 30, 2022
If you are so sure put some money on it Jerry
You are always right.
September 29, 2022
Morning John,
Told you the BOE was working against you.
If you are serious about going FULL Brexit John then reverse the Maastricht treaty rules applied to the BOE in 1997.
Here’s the Treasury select commitee submission from 1999
https://publications.parliament.uk/pa/cm199900/cmselect/cmtreasy/154/cor15402.html
It is from November 1999 and describes the accounting and function changes that occurred as a result of Maastrict and with Bank of England independence.
Paragraph 37 onwards, the government simply spent according to direction from Parliament and this was expressed as money injected into the economy via the Bank of England. Then the Bank of England issued gilts (though always a liability of Treasury) solely with an eye on monetary conditions. In cases where not all of the government spending was drained – because the monetary objectives didn’t require it – then Ways and Means account simply acted as a balancing item. The Ways and Means account was therefore basically analogous to an overdraft, an IOU of the Treasury. So even in this case, we have Treasury IOUs backing central bank money creation, but as explicit, overt, unequivocal money creation by government spending. And the only concern in this system is the monetary target, i.e. inflation.
Post-1997 we have the system that we have now. The Treasury (DMO) is now responsible for cash management which means it has to clean up after itself by issuing gilts to neutralise its spending. This leaves the Bank to focus on regulating the economy only with respect to prevailing conditions rather than the additional complication of government cash flows. So now when the BoE needs to add more money to the economy it cannot use any of the government’s direct spending (i.e. only drain part of it off) as before because the DMO has already drained it all. So now it has to buy back some of the gilts that the DMO sold. Again, we have net money added to the economy backed by a Treasury IOU, though this time it is a gilt rather than an entry in the Ways and Means account.
There are now two targets in the system: (1) the Treasury’s balanced cash flow target; (2) the Bank’s monetary target. In many cases the Bank will have to undo what the Treasury has done, instead of both simply acting together under one target as they did before Maastricht.
Reverse it and get real independence again from the technocrats. Use the ways and means instead of gilts.
September 29, 2022
The only bonds UK households and UK pensions funds needs are Granny Bonds
There are a few people who argue that Gilts and Treasury Bills serve other purposes. These are the arguments for so-called āsafe assetsā. There is no justification for them, and the arguments donāt stand up to scrutiny when analysed systemically.
Government bonds are nothing more than tradeable welfare payments, and welfare payments should be democratically targeted not market purchasable.
The reason we donāt need them in the UK, whereas there may be arguments in other nations, is because we have National Savings and insured deposits. The corrective institutions already exist and are operational.
Although the UK government has no need for Sterling from anybody, there are entities within the economy that need to save very safely. Who are these people who require a safe savings mechanism and, if there are any with merit, how do we provide that?
Once you go through the list, you find that only individuals have a justifiable need for safe savings back by the government – if the society considers that saving for retirement is the way to deal with the pension provision issue.
(Central government can, and does, provide a flat state pension for everybody. Here in the UK, we have a long history of saving for retirement and the differential pension provision between individuals that implies. It is unlikely that UK citizens will want to give that up.
The problem is that pension funds cannot provide that pension by private means alone, to the extent that the government invented Index-Linked Gilts as a way for pension funds to cover their liabilities via, essentially, a backdoor into the taxation mechanism. However, due to ever-lower interest rates, and increased demand, those are no longer sufficient.
For example, the ā0 1/8% Index-linked Treasury Gilt 2051ā was issued on the 9th Feb 2021 at an issue price of 189.70 per 100. In English, that means you get 12.5p for every Ā£189.70 you use to buy the bond. To get a modest top-up index-linked pension of Ā£10,000 per annum using those would require a capital investment of some Ā£15,176,000. Thatās not the sort of sum youād be able to save up on your average road menderās salary.
Index-linked gilts maintain the value of capital as well as income. However, at the issue prices they are selling for today, that isnāt sufficient to retain the capital sum over time. In the example above over Ā£7 million of present value disappears as soon as you drive the bonds out of the auction room, which is even worse depreciation than buying a Jaguar.
We are likely to need National Savings annuities, where an individual can build up an annual additional pension by purchasing āGranny Bondsā directly. They would have limited residual capital value and no capital uplift, but they would give a secure additional income in retirement for ordinary people who decide to be thrifty and save. The precise level and nature of the instruments is open to debate.
Beyond that, deposit insurance in banks would cover rainy day funds. The current value is Ā£85K. Unlimited deposit insurance for individuals (directly and on trust – to cover client accounts at solicitors, for example) would be as much as is required.
As for everybody else, the market will provide. For corporates, the default option for their cash pile deposit is an involuntary investment in a bank. Society doesnāt want them to have a cash pile, it wants them to run their working capital on an overdraft.
For smaller operations and service businesses without the sort of āhard assetā collateral banks require, the government could provide Ā£50K of overdraft insurance to the banks, much as they are doing at present with the Business Interruption Loans.
Foreign holders of Sterling hold that money for neo-mercantile purposes due to a belief in āexport-led growthā. They need to spend it, invest it properly, or be left, once again, with the default investment of a Sterling deposit in a bank.
There is no reason why the UK households should be propping up capital values in the Norwegian Global Pension Fund (or any other foreign pension fund or central bank) with public interest payments.
A reduction in bonds means an increase in cash and reserves, and therefore less need for repos and other collateralised transactions. Instead, go back to using real things as the basis for collateral and discount them into money, which is what banks are supposed to do for a living.
If banks have got so soft that they canāt price properly off zero, then itās time to let the market sort them out and produce banks that can price off zero properly. If that means a few banks have to go to the wall, so be it. You wanted capitalism – thatās how it works.
NO MONOPOLIES !
Once we no longer need banks as the channel for economic stabilisation, we can allow the banks to be subject to full market competition, which will drive the improvements that are desperately needed in that area.
The direction of travel of current monetary policy thinking – towards further abuse of the central bankās purchasing capability. We are seeing that in the current shift away from purchasing government bonds, to purchasing corporate bonds. Before too long the central bank will be bailing out other private sector assets.
Granny Bonds is what UK savers need. Pre Mastricht style.
September 29, 2022
What is a road mender?
September 29, 2022
John,
Have a look at “Increasing Immigration is the Biggest Brexit Betrayal” on the YouTube channel “The New Culture Forum”
Why are no MP’s saying this? The majority view of the British people I may say.
September 29, 2022
Ian G: As I write there are 430 comments under that Culture Forum article all of which should be read too and by our MPs. The majority raise legitimate concerns but also individual feelings of helplessness, frustration, the perceived lack of will and lack of anybody in authority willing to acknowledge the truth and reality or say anything meaningful apart from the usual daily set pieces & platitudes as the years & months go by.
September 29, 2022
yes indeed
and the mess the Conservatives have got themselves into by becoming the proud proclaimers of much higher immigration while Labour are claiming (laughably) to be the party of low immigration, its going to be one electoral bloodbath.
taking on the blob and those conspiring to stop the governments financial plans is one thing, taking on the voters and becoming the party openly advocating more immigration is electoral suicide.
at least Mrs May, Cameron & Boris paid lip service to lowering immigration (without actually doing anything to deliver it) was vaguely electable, openly telling the voters to get stuffed regarding one of their chief complaints will not end well
I can only hope some people like John Redwood actively tell the ministers this will not fly
September 29, 2022
and the comments below this video from the public say it all
complete and utter loss of faith in the political parties
September 29, 2022
What happened shows that the treasury has no idea what they are doing along with BOE, it is their job to know where the count party risk is and not go round blewing up pension funds, it also shows that even at 5 plus per cent nobody wants your bonds and not because of the new policy on tax but because they think that you cannot attain real growth with net zero in place and they would be right. If they don’t know how to do there job why have them, they are in a dream world and know nothing about money.
September 29, 2022
If the red team in USA win the up coming election they dump net zero and go for growth.
September 29, 2022
Ms Truss and Kwasi are coming across as ideological / academic Tories – not practical / business-minded ones.
Might be wrong. But so far I don’t have enough confidence in them. I have more in Johnson and Sunak (although far from ideal as well but beggars can’t be choosers) – at least to get us through the general economic crisis (that started before Ms Truss as PM).
September 29, 2022
In the USA they have 10 to 30 year mortgages so short term move in the market do not affect home buyers and if the rates go down they can swap to a lower rate.
September 29, 2022
I like to say that USA dollar is not the real cause of what is happening, it not helping but it the euro/dollar that is problem, this is the system where by the rest world has their own dollar system and it is broken. The best thing to do is to advertise for a money expert at 20 million plus a year. Putin has one aand as you can see his money is stable.. Huge deflationary wave waiting to come in, just needs a signal and no printing money was not the cause of inflation because it never left the system.
September 29, 2022
Andrew Bailey wasnāt up to the job at the FCA and isnāt up to the job at the BoE either. Why was he appointed (by Sajiv Javid I believe) ?
September 29, 2022
Surely everyone knows the BoE has utterly failed in its given task of managing inflation. Everyone also knows that inflation and interest rates will go much higher than the BoE says it expects.
September 29, 2022
What would happen if the government, to prevent chaos in the housing market, decided to enter the mortgage market and provide fixed term, 25 year mortgages at, say, 4%? They could sell 25 years bonds with a coupon of 3% and lend the money out at 4% – lent against about the only thing which seems to have long term security, houses.
September 29, 2022
Housing prices are only like that due to state manipulation, high levels of immigration, constrained supply due to poor planning system, catchment area nonsense, various bribes to different kinds of buyer, way rental market is regulated.
None of which is guaranteed if we got a half sensible government in place after a few big shocks to the current established political class.
September 29, 2022
Notwithstanding everything I read here and in the media generally, I can’t help but come to the conclusion that the Tory Party are toast. The Sunak camp does not seem to be supporting the Truss camp. And, as the phrase has it – ‘it’s the economy, stupid’. And most people must realise the Tories have made a complete dog’s dinner of the economy.
Heaven help us – brace for a Labour government. Could they be worse than the current bunch?
September 29, 2022
The weaponisation and politicisation of a virus will destroy the UK. I hope the Tory, Labour, SNP and the union cabal are happy with their two years of work.
Authoritarianism is expensive to construct and maintain. We are now all paying the price
September 29, 2022
Neither the Government nor the BoE could match the huge sums being used to speculate on the GBP during the Black Wednesday crisis of 1992, around 30 years ago. They wasted even more Ā£Billions of our money trying to fight the FX market traders.
Lessons should have been learned from that disaster but it appears the BoE Governor was deaf and blind to that crisis.
I do wonder if the PM and her elected Government should now take back control of the BoE so that it is our own representatives who call the shots there. The Governor has intervened in subjects outside of his remit.
September 29, 2022
I’ve been telling this site for at least 5 years that
(a) base rate is too low
(b) inflation hasn’t been beaten but merely gone into asset prices
(c) if you want to control money supply by targetting inflation, you need to include a measure of asset prices in the inflation index
Nobody in the world of politics has taken a blind bit of notice and now the chickens have come home to roost.
The only way to make the tax cuts stick is to cut public expenditure a lot. Looking for ‘efficiency savings’ is only a start. It’s high time that the State started to live within ITS means and stopped lecturing us.
And don’t expect GDP growth until inflation has been beaten. People are scared stiff of overspending.
September 29, 2022
It’s noticeable that the big guns on Truss’s team aren’t coming out to support her . Reece Mogg must have gone to ground like a fox avoiding the hunting pack i.e the media.
September 29, 2022
When the media are as mendacious and malicious as ours, it is probably wiser for Ministers not to give them the opportunity of twisting and misrepresenting them when there is panic and hysteria at large. Besides, they wouldn’t be allowed a word in edgeways.
September 29, 2022
Oh goody. Wet and windy tomorrow so hopefully not so many dinghy invaders.
September 30, 2022
I wouldnāt be surprised if the Royal Navy went to the French beaches to pick up the illegalās, in compliance with H&S, keeping them free from harm attempting the journey in rough seas
September 29, 2022
Lizz may not be a character, a whiz with the ancient world, gregarious, extrovert or full of self importance ā¦but I like that, I like the idea that we now have a hard working PM and not a celebrity
September 29, 2022
The appaling optics on the mini budget which make it certain the tories will lose the next election.
However, the media, even the DT, have been exposed. The pounds collapse was in every headline but now it has climbed today back over 1.11 dollars not a word is seen on the pound. Instead the attack on Truss moves on to other areas.
September 29, 2022
Is there any way we can have Conservatism in this country ? It’s OK furlough, energy caps, NHS rises, mass immigration being uncosted but as soon as we talk tax cuts (costing much less than the aforementioned)…. the BBC etc goes berserk and talks us into a currency crisis through misuse of the word ‘uncosted’.
The state-ist boot must be taken off the windpipe of the private sector.
We are talking an easing of the tax take which has risen on the same tide as inflation.
September 30, 2022
It is unbelievable that the Prime Minister is signing the U.K. up to the “European Political Community”. She is a complete liar who said one set of things to win the leadership and is now doing the opposite. She is going down to a historic large election defeat.
September 30, 2022
Its un-democratic