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Posts tagged Vince Cable
Lib Dems refuse to support Tory spending cuts
Mar 14th
Nick Clegg describes George Osborne’s plans to slash budgets as ‘economic masochism’
The Liberal Democrats have distanced themselves from the Conservatives by warning they would not support plans to cut public spending too early in the next parliament.
The party’s leader, Nick Clegg, said early deep cuts would be “economic masochism”. It came as the Lib Dem treasury spokesman, Vince Cable, hit out at the Tories’ economic plans. In his speech at the party’s spring conference in Birmingham, Cable accused the Conservatives of engaging in a “phoney war over cuts” that would affect millions of lives. He also hit out at George Osborne, the shadow chancellor.
Cable said the Tories were trying to present their economic team as “‘Slasher’ Osborne and the Hard Men”. But, he added, they appeared to have taken cuts straight after the election off the table – at least for now. “Or at least that’s what I think they said. I’d love to attempt a critique of the Tories’ budget plans, but I have no idea what they are. I think the present line on the budget is: ‘Trust us and we’ll tell you after the election’,” he told cheering delegates.
He added: “People are desperate to see the back of this Labour government. But they don’t want the same old Tories. And make no mistake they are exactly the same.”
He also claimed that David Cameron’s party and its “cronies” were trying to create financial panic to frighten people into voting for them. “Playing fast and loose with the financial stability of this country for political gain – destabilising the markets – is dangerous, irresponsible and wrong,” said Cable.
He did not limit his criticism to the Conservatives. Cable, having famously compared Gordon Brown to Mr Bean, this time made delegates laugh when he said the prime minister sounded like the Chelsea footballer Ashley Cole, pleading: “Give me another chance.”
The Lib Dems had identified £15bn worth of reductions in public spending that would cut the deficit, he said. The party has come under an increasing level of scrutiny as the polls narrow. Observers are watching for any signs to suggest whether the Lib Dems would be prepared to make a pact with Labour or the Conservatives in the event of a hung parliament. That is the scenario suggested by two polls released today.
YouGov research for the Sunday Times finds that the Tories’ lead has narrowed from five points to four over the past week. An ICM poll for the Sunday Telegraph places Cameron’s party seven points ahead – not enough for a majority. The same research suggests that the Lib Dems have strengthened their position and are now on 21 points.
Clegg will discuss a hung parliament when he addresses MPs today. “People often ask me what the Liberal Democrats will do after the general election. Some days I read we’re planning a deal with Labour, some days that we’re planning a deal with the Conservatives, other days that we’ll refuse to talk to anyone at all,” he is reported as planning to say.
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Trade deficit soars to £8bn highest level since July 2006
Mar 9th
• Despite weak pound hopes of export-led recovery doubtful
• Small firms seek more help over funding exports drive
Hopes that the cheaper pound will power the UK to an export-led economic renaissance suffered a blow with news that the trade gap widened sharply in January.
With sterling around 25% weaker than before the credit crunch, economists have been expecting demand for cut-price British goods to increase, helping to offset some of the pain from the clapped out banking sector and weak consumer spending.
But official figures released today showed that instead of benefiting from the weakness of the currency, exports of goods fell in January by £1.4bn, or almost 7%: the worst monthly decline in exports since July 2006. With imports falling much less sharply, the deficit widened by £1bn, to £8bn.
Including services, on which the UK runs a surplus with the rest of the world, the deficit still widened, to £3.8bn from £2.6bn in December – the biggest gap since August 2008.
The news sent sterling lurching downwards again on the foreign exchanges slipping below $1.50 against the dollar to hit its lowest level in a week.
Some analysts suggested the freezing conditions at the start of the year may have distorted the figures. “Extremely bad weather affecting transportation of goods are likely to have contributed to a worsening in the trade balance,” said Hetal Mehta, of forecasting group the Ernst and Young Item Club.
However, Liberal Democrat Treasury spokesman Vince Cable said the news was “deeply alarming.”
“These figures suggest that the long term decline and neglect of British manufacturing has taken its toll and that an awful lot more needs to be done to rebalance the economy to make it more competitive,” he said.
Economists agreed that there is so far little evidence that the decline in the pound is helping the UK to compete. Colin Ellis, of Daiwa Capital Markets, said, “there is still no sign of the UK transforming into an export-led economy any time soon… in terms of GDP during 2010, it is increasingly looking like net trade may not provide that much impetus to growth after all.”
Separately, the British Chambers of Commerce (BCC) warned that a shortage of finance for exports was preventing many small firms from accessing overseas markets, and urged the chancellor to address the issue at his forthcoming Budget, expected later this month.
“If the government is serious about encouraging British exports as a driver of employment, economic growth and prosperity, it must resolve blockages in the finance that underpins UK global trade,” said the BCC’s director-general, David Frost.
The BCC estimates that 90% of all world exports are dependent on some form of trade finance – insuring a company selling goods abroad against a payment failing to materialise, for example. A survey of its members in the Manchester area showed that many had lost out on business because of lack of trade finance – often to firms based in countries which provide stronger taxpayer-backed schemes.
“Our exporters need to be able to compete more effectively with rivals on the Continent and further afield, who are currently better supported during difficult economic environments or in riskier foreign markets,” Frost said.
Analysts said the disappointing trade figures had underlined traders’ pessimism about the prospects for the UK, after a worse-than-expected report on the prospects for the housing market from the Royal Institution of Chartered Surveyors.
Pressure on the pound was also exacerbated by remarks from a senior figure at ratings agency Fitch, expressing disquiet about Alistair Darling’s fiscal plans.
Brian Coulton, head of Europe, Middle East and Africa sovereign ratings at Fitch, told a conference in London that, “the UK, Spain and France in particular must outline more credible fiscal consolidation programmes over the coming year given the pace of fiscal deterioration and the budgetary challenges they face in stabilising public debt. Failure to do so will intensify pressure on their sovereign ratings.”
Shadow chancellor George Osborne seized on Coulton’s remarks, claiming they supported his determination to start cutting the budget deficit in the current financial year.
“Here is the clearest possible warning from a credit rating agency that this government’s plan is not enough to protect Britain’s credit rating,” he said.
“The red light is flashing over the British economy and we have a choice – action with the Conservatives to secure the recovery or more dither and delay with Gordon Brown that puts our economy at risk.”
Trade minister Lord Davies said: “You cannot read too much into monthly trade figures. The long-term figures are good, with exports rising by £2.6bn to £60.3bn in the last quarter. The different value in sterling will take time to feed through to improved export performance and the full benefits will not be seen until demand in our main markets picks up more strongly.”
The Budget will be the prelude to a general election campaign, and the chancellor is expected to use it to reaffirm his pledge to halve the deficit as a proportion of GDP over the next four years. Some analysts believe that with the figures for most of the financial year now in, he could also reduce his forecast for this year’s deficit, from £178bn.
However, Downing Street is nervous that the economy remains dangerously weak. The office for national statistics will reveal its first estimate of growth in the first quarter of the year in late April – probably in the thick of an election campaign. News of a slide into a “double dip” would undermine Labour’s claim to have nursed the economy back to health.
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CBI calls for rapid cuts in public spending
Mar 8th
• CBI chief says Treasury must balance the books by 2015-16
• Directors body urges slashing budget deficit soon after election
The government must use its final budget before the election to improve Britain’s battered fiscal credibility and to find new ways to help businesses still reeling from the deepest recession in decades, the CBI business lobby group urges.
In a letter to the chancellor, Alistair Darling, the CBI’s director general, Richard Lambert, says the government needs to accelerate its efforts to get the public finances back on track to counter speculation that it is the next European country at risk of moving down the credit ratings.
Against a backdrop of recently published official data showing the worst January public finances on record, Lambert urged the Treasury to come up with a plan to balance the books by 2015-16, two years earlier than planned.
“This budget comes at a pivotal moment for the UK economy. Investors are clearly jittery about sovereign debt, but are prepared to give the UK the benefit of the doubt until after the election,” he said.
Most economists agree the deficit for this financial year is on track to meet or even beat Darling’s forecasts and Lambert believes that Britain’s top AAA credit rating is not under serious threat. But the former member of the Bank of England’s rate-setting committee also highlights a growing debate about the long-term sustainability of the country’s coveted top debt status as turbulence in the Euro zone continues, particularly around Greece’s huge deficit.
“Significant concerns remain about the UK’s fiscal situation,” he writes to the chancellor. “A detailed plan for delivering fiscal consolidation remains the key to addressing concerns about the UK’s public finances, and to supporting the macroeconomic recovery.”
The The group wants the government to provide more details of spending plans for government departments and a path for spending that is flat in real terms rather than the future real terms growth that was pencilled in at the time of Darling’s pre-budget report.
Liberal Democrat Treasury spokesman, Vince Cable, said: “This submission highlights how dangerous the government’s position is. The country can’t afford to have political parties playing politics with the public finances. The British people and the markets have the right to know how and when each political party will tackle the deficit.”He said that the Liberal Democrats have made it clear that the point at which we cut spending will be based on economics and not political dogma. “While Labour buries its head in the sand and the Tories mire themselves in confusion, only the Liberal Democrats have produced a credible and coherent plan for dealing with the deficit.”
Separately, the Institute of Directors (IoD) also called today on whichever party wins the forthcoming general election to take measures to cut the deficit as soon as it takes office. It cautioned that the economy could be damaged if the debate over ’sooner rather than later’ continues. A survey of 1,500 IoD members showed that almost nine out of 10 believed current levels of public spending should be cut, most saying that reductions should start this year.
Miles Templeman, the IoD’s director general, said: “We are convinced that we need swift action to tackle the budget deficit. This means making significant spending cuts in 2010.The argument that early cuts would jeopardise the recovery is mistaken. We believe that lower spending is likely to trigger a whole series of positive developments that will assist growth.”
Meanwhile, the CBI’s other plea ahead of the budget, expected to be delivered later this month, is for measures to help businesses pick up the slack as inevitable public-sector cuts bite.
Chief among the group’s demands is a call for Darling to reverse the planned increase in employer national insurance contributions by 1 percentage point from April 2011. “Imposing an extra tax on employment will jeopardise jobs and growth at a time when the economic recovery is likely to be fragile,” Lambert argues. The direct appeal to the chancellor follows the CBI’s launch last week with other groups such as the Federation of Small Businesses of a petition urging the government to freeze national insurance.
The CBI also wants the government to reconsider planned increases in fuel duty, changes to air passenger duty and to look at deregulating small mergers to help struggling firms survive by joining forces. While conditions in financial markets have improved, business surveys largely point to “some kind of uplift” and official data showed Britain emerged from recession at the end of last year, the reality for many companies was rather different, said Lambert.
“Most of our member companies are very cautious or even anxious when they are talking about the way ahead. They are concerned that as the year goes on family budgets are under pressure,” said Lambert.
The number of people claiming unemployment benefits, at 1.64 million, is already the highest since just before Labour swept to power in 1997. But Lambert points to real worries about the potential for unemployment to rise further after companies have hoarded labour over the last two years. With wage freezes and cuts to working hours commonplace, the CBI warns that any growth in real disposable income will be modest. At the same time, last year’s boost to household finances from receding mortgage costs has fallen away and businesses are wary about fragile consumer confidence.
Another root of firms’ anxieties is the struggle to get finance. “Credit conditions are difficult and net bank lending to small businesses is falling,” said Lambert. Lending by banks to companies fell last year for the first time since records began in a sign of banks’ reluctance to provide finance and the reluctance of companies to take on what they see as the prohibitively high cost of any loans. Bank of England data last month showed lending to businesses fell by £4.3bn in December alone.
The CBI’s members have also flagged up anxieties around signs that a eurozone recovery is stalling. While a weak pound has boosted export order books, according to the business group’s own surveys and other polls, if growth in the UK’s main export market slows demand will ultimately slip back too, it warns.
Hard times for small businesses
For York pub owners Chris and Emma Watkins, the gloomy reports from business groups on constrained credit and official figures of falling lending are something they are all too familiar with.
The husband and wife team bought the Lamb & Lion Inn last year and felt they were steadily turning the business around with more diners spending more per meal, a growing clientele and rising occupancy for their 12 rooms. But last week the couple’s dream was brought to an abrupt end as the Watkins were forced to tell staff their lender, Royal Bank of Scotland, had called in administrators after the couple decided they were unable to sign up to the terms. The doors closed on the historic inn, built in 1756, just as its new owners felt it was starting to flourish. Chris Watkins, 33, said: “I think the business is a good little business, it could still be a viable business.” The fact that RBS received a taxpayer bailout to keep it afloat should encourage it to help smaller businesses . “But it’s the constraints imposed by RBS with high interest rates and fees. It should work a bit harder to help small businesses.”
The Watkins’ story mirrors that of many other businesses. A recent survey by the Federation of Small Businesses found a third of firms that had acquired credit in the last year reported hefty charges, the vast majority saying their rates increased by more than one percentage point.
Watkins maintains that during talks to negotiate the terms of the Lamb & Lion’s loan, the RBS bankers introduced new requirements and conditions, were slow to respond to requests for information, frequently changed their minds and so frightened off two sets of private investors and dismissed the couple’s alternative business plan.
“When the bank finally came back to us, their terms were so severe, unreasonable and unrealistic that the Lamb & Lion could never have made a profit. And Emma and I would not make a living wage despite working seven days a week,” he says.
“It adds insult to injury that the bank that is doing this to us is 84%-owned by the taxpayer and was instructed by the Government to lend money to help small businesses like ours survive.”
RBS responded that an offer to provide finance to keep the pub business going had been available since August and still stands stood today. “The terms of the deal were initially agreed by the customer but they have yet to fulfil the conditions of the agreement. We have not received any repayments on outstanding debt since April last year, a situation which clearly cannot go on indefinitely,” the bank said in a statement. “It was their decision, not the Bank’s, to close the business.”
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Vince Cable: force banks to lend billions more to businesses
Feb 23rd
• Use bailed out banks as tools of policy, says Cable
• Bonuses should be banned and banks broken up
A new government should tear up “ineffectual” lending agreements with Britain’s taxpayer-owned banks and force them to lend billions of pounds more to small and medium sized businesses, Liberal Democrat Treasury spokesman Vince Cable said today .
Agreements signed by the government last year with Royal Bank of Scotland and Lloyds Banking Group were poorly implemented and had failed to generate the funds needed for British business to get back on its feet, he said.
In a move to distance himself from rival parties ahead of the election, Cable argued banks must put aside any thoughts of returning to the private sector, possibly for 10 years, while they perform a job for the wider economy.
“Restrictions on lending to sound companies by all banks is preventing a sustained economic recovery and thereby compounding the risk of growing bad debts,” he said. “Behaviour which appears sensible to individual banks is disastrous when pursued collectively.”
Bonuses should also be effectively banned from the banking industry and banks broken up, he said, in a clear message to Barclays and HSBC that they would be forced to separate their investment banking arms from less racy retail operations.
The government has urged banks to increase lending, but has so far refused to loosen other requirements that could make funds available.
Cable argued concerns among nationalised and semi-nationalised banks that they should shun risky lending in favour of building up their reserve capital were “largely irrelevant” because government guarantees meant they “cannot go bust”.
Treasury officials have already admitted banks will miss lending targets. A study by the Institute of Directors highlighted that six out of every 10 businesses was being “starved of capital”.
Those companies able to borrow were being asked to provide extra security and pay large arrangement fees and high interest rates, Cable said.
Without government intervention and the use of state-owned banks as tools of government policy, the UK risked slipping back into a long recession that would prove as disastrous over the longer term for bank profits as it would for the economy.
Last week Tory shadow chancellor George Osborne proposed selling shares at a discount in RBS and Lloyds at the earliest opportunity. He put forward a plan for savers to buy shares in the banks after their share prices had recovered sufficiently for the government to recover its own shareholdings.
Cable ridiculed the plan, which he said would perpetuate the current obsession among banks to make profits, pay dividends to shareholders, horde cash and drive up their share prices.
Taxpayers should hang on to their shares for at least 10 years and following the Swedish model maintain a sizeable minority holding of 10% or 20%, he said.
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RBS chief turns down bonus amid outcry over ongoing bank payouts
Feb 21st
• Bank prepares to hand out £1.3bn in bonuses despite making loss in 2009
• Decision puts pressure on rivals at Lloyds and HSBC to do the same
Stephen Hester, chief executive of Royal Bank of Scotland (RBS), has decided to turn down his bonus for 2009 amid a growing public outcry over the scale of rewards, piling further pressure on rivals at Lloyds Banking Group and HBSC to do the same.
Hester’s attempt to defuse the row brewing around the bank, stoked by the business secretary, Lord Mandelson, today, comes as RBS prepares to pay £1.3bn of bonuses to its 22,000 investment bankers despite making a loss in 2009.
Hester is believed to have told Sir Philip Hampton, chairman of the state-controlled bank, that he will reject any bonus he is offered – possibly as much as £1.6m – on top of his £1.2m pay. Liberal Democrat Treasury spokesman Vince Cable described Hester’s decision as “very sensible”.
Eric Daniels, chief executive of Lloyds Banking Group, which like RBS is controlled by the taxpayer, now faces pressure to reject any bonus he is offered by the bank, which is expected to report losses of at least £3bn on Friday.
The top executives at HSBC, which has survived the crisis without taxpayer support, will endure similar pressure despite attempts by the bank’s remuneration committee to win pay rises for the top team.
HSBC’s remuneration committee meets this week after sounding out investors about pay rises of up to 40% for top executives. It will need to decide whether to ignore popular opinion and shareholders by forcing through the pay rises before next Monday, when HSBC will include full remuneration details in its annual report – the first major UK bank to do so.
The committee has been discussing pay rises for Douglas Flint, the HSBC finance director who appears before the Treasury select committee today, and chief executive Michael Geoghegan, who recently moved to Hong Kong. The HSBC management is understood to be reluctant to go to war with shareholders over a pay rise if significant major shareholders have strong objections particularly when rivals at Barclays did not take their cash payouts.
The decision of John Varley and Bob Diamond, the top two executives at Barclays, to turn down their bonuses began the pressure on rivals at the state-controlled banks, Lloyds and RBS, which are making a loss.
Hester, who was parachuted in to replace Sir Fred Goodwin during the October 2008 bailout, still stands to be rewarded through a long-term pay scheme which is being drawn up and will be put to shareholders at the annual meeting in April. The 2009 long-term deal might pay out £9m if the share price, currently about 35p, tops 70p in three years.
Hester is concerned the politicisation of RBS will hinder his task of getting up to £54bn of taxpayer money invested in the shares back to the public. He had been in discussions with Hampton about his bonus even before Lord Mandelson urged him to think about the payment.
Mandelson said: “What I would say to RBS is this, and to their chief executive Stephen Hester, who is a rather strong and rather able man but whose performance and delivery has not yet been tested: if further down the line in years to come he has done well and he has turned round RBS he deserves something back for it and I would be the first to say so, but not now.”
He added: “What we have said to them is that their priority is repairing their balance sheets and getting their capital back in place and lending again fully.” Mandelson also seemed to indicate that the £1.3bn that RBS has proposed paying out to its investment bankers is likely to be sanctioned. “The bonus pool they have indicated is very much at the lower end of the banks,” he said.
On Thursday RBS is expected to declare that the £24bn record 2008 loss has narrowed to around £5bn and that it has met many of the turnaround targets set by Hester, who has divided the bank into a core operation and a non-core business containing divisions that need to be sold off.
Hester has won support in some quarters – including investors at Standard Life – because, unlike bankers who were already in their roles when the crisis struck, he was brought in to solve the mess.
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Letters: Spending cuts will worsen the recession
Feb 17th
Two critical points seem to evade the eminent economists calling for the elimination of the “structural budget deficit” within five years (Top economists attack Labour plans to tackle budget deficit, 15 February). First, it’s probable that the world economy is heading into one of its cyclical 20-year downswings. Second, there is a related absence of new sources of demand to create a sustained upswing. In these circumstances, cutting government spending, the main engine of employment while banks are effectively curbing private lending, is a recipe for deepening the recession.
These economists seem to have forgotten Keynes’s accurate diagnoses that similarly misplaced policies, aimed at fiscal and monetary parsimony, turned recession into depression in the 1930s; a trick repeated to similar devastating effect by Thatcherite economics in the 1980s. They also seem to ignore the fact that many other governments have similar budget deficits. A co-ordinated international effort to harmonise borrowing would make more sense than the likely international competition in budget cutting to placate financiers. The latter development could have similar effects to the disastrous competitive currency devaluations of the 30s.
University of Bath
• Are these 20 economists among those who utterly failed us over the credit crunch? I’ll stick with Vince Cable’s advice. He got it right last time.
Professor Emeritus Peter Gardiner
Ringmer, East Sussex
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Vince Cable and bank box-ticking
Feb 23rd
Posted by Nils Pratley in Business
No comments
Decent companies are struggling to get loans
You do not have to be a full supporter of Vince Cable’s interventionist approach to running Lloyds and Royal Bank of Scotland to acknowledge that the Liberal Democrat Treasury spokesman is on to something when he says the semi-nationalised banks’ lending commitments should be “more concrete, long-term and better policed”.
The reality is that the two banks will meet the pledges they gave the government only on mortgages. On lending to businesses, they will miss by a mile.
This is not, in general, a problem for big companies, which can sidestep the banks and tap the bond markets. Smaller companies do not have that option – hence the concern.
The argument from the banks is that they have been shovelling out cash as fast as they can. It’s just that other customers have been repaying loans at a frantic rate. That is why, they claim, the lending figures look appalling when viewed on a net basis. The bald statistics, they conclude, don’t reflect their efforts to support small companies.
Lack of demand for loans must be part of the story, but only part. Cable’s analysis more closely fits the anecdotal evidence that it has become too hard for decent companies to get loans at reasonable rates. “There are too many reports for comfort that rich private clients are having their arms twisted to borrow while genuine entrepreneurs are given a wide berth,” he says.
Cable would like to put on hold plans to re-privatise fully RBS and Lloyds while the pair are made “tools of government policy”. This may sound like a formula for forcing the banks to hand out cash willy-nilly at uncommercial rates. If pursued to silly extremes, that would indeed be the result and it’s hard to see how taxpayers would benefit.
But there must surely be a more accommodative approach in which RBS and Lloyds are forced to honour the spirit of the commitments they gave. The two banks were bailed out partly to ensure they would support recovery. If they are not performing that function, sending in the policemen is surely fair.
Cable wants Alistair Darling to give a public account of what has happened on the lending agreements and the chancellor seems likely to oblige. The banks’ accounts – who knows? – may turn out to be well founded. But if, as Cable alleges, they have been “playing all kinds of games to tick the boxes,” it will be shocking that we’ve had to wait a year to hear the evidence.