Scale Of Spending Cuts Laid Bare In TV Debate

(Telegraph) – THE TRUE SCALE of the public spending pain that awaits whichever party wins the election was laid bare by the unanimous verdict of the Chancellor and his Conservative and Liberal Democrat counterparts in a live television debate.

During the debate on Channel 4 Alistair Darling, George Osborne and Vince Cable were asked how deep cuts will need to be to restore Britain’s economic credibility. They all agreed that the cuts would have to be tougher than those imposed by Baroness Thatcher in the 1980s.

The discussion was a curtain-raiser for the party leaders’ ground-breaking television debates that will take place once the election is called.

The Chancellor last week surprised other Labour figures when he allowed himself to make the comparison with the Conservative government of the 1980s.

All three men are likely to be privately happy with their performance but no one managed to land a knockout blow.

There had been concerns from some in Tory ranks that Mr Osborne would struggle to make an impact, but in the 50 minute debate he stood his ground on the key economic issues and made Mr Darling shift uneasily over Labour’s plans for a death tax.

Mr Cable, who claimed he was the only politician of the three to have experience of industry and the only one to have warned of the impending crash, was able to tap into the audience’s apparent distrust of the other two parties. He was applauded and got one of the very rare laughs from the Channel 4 audience.

Mr Osborne had to withstand what appeared at times to be an attempt by Mr Darling and Mr Cable to gang-up on him. Mr Cable, who got more applause from the studio audience than his two counterparts from the main parties, got very personal in his final comments.

The Liberal Democrat treasury spokesman warned that Mr Osborne and his party wanted “another chance to get their noses in the trough and reward their rich friends.”

He added that the Conservatives has “wasted” the revenues from North Sea gas and had “presided over two recessions.”

But Mr Osborne kept his cool and made a direct appeal to voters saying they would be able to make the choice between change or more of the same after 13 years of Labour failure.

He said: “They [Labour] took one of the strongest countries in Europe and we are now one of the weakest.”

And he hit back at Mr Cable, by pointing out that the choice was Conservative or Labour because “there is not going to be a Liberal Democrat government.”

The shadow chancellor has been under pressure in recent weeks to show that he can articulate the true scale of the problems facing the country and translate it into vote winning rhetoric. He repeatedly referred to how it was the “audience’s money” and “the people at home” who were paying for Labour mismanagement of the economy.

But the debate was also characterised by a number of areas on which the three parties seemed in agreement. They included the new 50p tax rate for top earners, reform of public sector pensions the need to keep options open on future VAT increases.

Mr Darling attempted to seize on Mr Osborne’s decision yesterday to say that Whitehall cost savings would be used to reverse part of Labour’s planned National Insurance rise.

The Chancellor said Mr Osborne was taking an “irresponsible risk” and accused him of showing “poor, poor judgement.”

In the immediate aftermath of the debate Ladbrokes cut the odds on the Conservatives winning a majority from 4-6 to 8-13.

But in a sign that Mr Cable was probably the winner of the debate his odds on delivering the next Budget – as a Chancellor in a coalition government – were cut from 16-1 to 12-1.

David Williams of Ladbrokes said: “Vince put in the expected wily performance, but Osborne not falling down as some had predicted was a plus point for the Conservatives.”

Mr Cable also won the largest share of the Channel 4 viewers’ cote as the show came to a close. Mr Cable received 36 per cent of the vote, Mr Darling 32 per cent and Mr Osborne 31 per cent.

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Boiler Scrappage Scheme Closes To New Applications

(Guardian) – THE GOVERNMENT’S boiler scrappage scheme, which offered £400 to householders to encourage them to upgrade to a more energy-efficient central heating scheme, has closed to new applications after running out of money.

The scheme, launched in January, was aimed at cutting carbon emissions as well as helping people save money on their energy bills.

Up to 125,000 households in England with working boilers with the lowest “G” rating were able to apply for vouchers from the Energy Saving Trust, which they could put towards buying an A-rated boiler or installing a renewable heating system such as a biomass boiler or heat pump.

This afternoon the government announced that all 125,000 vouchers had been taken up and that the scheme is now closed.

“The scheme’s been a great success and is already helping people cut down on their fuel bills. An ‘A-rated’ energy-efficient boiler can help save around £200 a year off fuel bills and reduce emissions,” said Lord Hunt, energy and climate change minister.

“The scheme has also provided a much needed boost to England’s plumbers and boiler manufacturers, helping to sustain work for the 130,000 installers and up to 25 UK-based boiler manufacturers throughout the economic recovery.”

Some energy suppliers will continue to run their own promotional schemes.

Over the past two months, all the major energy companies which sell and install boilers (British Gas, E.On, npower and Scottish & Southern) have matched the government’s offer, giving householders potentially a total of £800 off the cost of a new efficient boiler and some boiler manufacturers are also offering deals.

NPower confirmed today that it would continue with its own scheme – it differs from the government’s in that customers only have to have a boiler that is over 10 years old to be eligible to receive a £400 discount.

Recently published figures from the Energy Savings Trust show that, as at 16 March, 118,785 vouchers had been allocated and 35,390 boilers had been installed. Since then the full allocation of vouchers has been taken up.

People have up to 12 weeks after receiving their voucher to have the work done. A spokeswoman for the Department of Energy and Climate Change said there were no plans to reopen the scheme at the moment or to reissue any unused vouchers.

Government Budgets ‘May fall by 25pc,’ IFS Says

(Telegraph) – GOVERNMENT DEPARTMENTS could see their budgets slashed by more than a quarter after the general election, the IFS has warned.

The Institute for Fiscal Studies said that Whitehall departments would have to find savings of £25 billion over the next two years, rising to £46 billion by 2014-15, to make Chancellor Alistair Darling’s Budget calculations add up.

However, the decision to protect front-line spending for schools, the NHS and the overseas aid budget for the next two years will mean the axe will fall disproportionately on other departments.

Carl Emmerson of the IFS said it had calculated that those departments whose budgets were unprotected would have to find savings of 14% – by 2012-13.

He said that, if the ring-fencing of the schools and health budgets were to continue after that, the savings would have to rise to 25.4% by 2014-15.

”This next spending settlement is set to be very tight for areas such as higher education, transport and housing,” he said.

The Government has been criticised for failing to provide details of cuts promised in the Budget.

The Treasury has said it will have to cut £39 billion from spending to meet targets for reducing the Government’s record deficit. That means almost £30 billion of cuts are yet to be explained.

The Ministry of Justice said it will save more than £340 million by closing 19 court buildings in England and merging bodies like the Meat Hygiene Service into the Food Standards Agency.

The Department of Children Schools and Families said it would make £1.1 billion of savings.

Some £950 million will come from schools, with savings also made at Sure Start children’s centres.

The department said the money will be saved by “greater use of collaborative procurement” and “reduced energy consumption”, but gave no details.

The Department of Health said the NHS will save £4.35 billion by driving down overheads, cutting agency staff and keeping people out of hospital where possible.

The department suggested that £1.5 billion will be saved by “driving down the cost of procurement.”

Annual savings of £550 million are expected from increasing staff productivity, reducing sickness and using fewer outside agency workers. And £60 million will be saved by using less energy.

Many other departments repeated previous broad commitments to save money by reducing consultancy bills, better procurement and information technology, and cutting staff absence.

The Ministry of Defence promised £700 million in savings from better “procurement and estate management.” The Home Office said it will save £350 million.

Vince Cable, the Liberal Democrat Treasury spokesman, said the programme was “totally vacuous” and suggested that most of the claimed savings will never be delivered.

He said: “If it’s inefficiency, why has it been tolerated all these years?”

George Osborne, the Conservative shadow chancellor, said: “This Labour Government has never been serious about tackling waste and inefficiency. Today’s announcements are meant to distract attention from the fact that they don’t have any spending plans beyond next year.”

Gordon Brown Told: ‘Explain why you sold Britain’s gold’

(Telegraph) – GORDON BROWN has been ordered to release information before the general election about his controversial decision to sell Britain’s gold reserves.

The decision to sell the gold – taken by Mr Brown when he was Chancellor – is regarded as one of the Treasury’s worst financial mistakes and has cost taxpayers almost £7 billion.

Mr Brown and the Treasury have repeatedly refused to disclose information about the gold sale amid allegations that warnings were ignored.

Following a series of freedom of information requests from The Daily Telegraph over the past four years, the Information Commissioner has ordered the Treasury to release some details. The Treasury must publish the information demanded within 35 calendar days – by the end of April.

The sale is expected to be become a major election issue, casting light on Mr Brown’s decisions while at the Treasury.

Last night, George Osborne, the shadow chancellor, demanded that the information was published immediately. “Gordon Brown‘s decision to sell off our gold reserves at the bottom of the market cost the British taxpayer billions of pounds,” he said. “It was one of the worst economic judgements ever made by a chancellor.

“The British public have a right to know what happened and why so much of their money was lost. The documents should be published immediately.”

Between 1999 and 2002, Mr Brown ordered the sale of almost 400 tons of the gold reserves when the price was at a 20-year low. Since then, the price has more than quadrupled, meaning the decision cost taxpayers an estimated £7 billion, according to Mike Warburton of the accountants Grant Thornton.

It is understood that Mr Brown pushed ahead with the sale despite serious misgivings at the Bank of England. It is not thought that senior Bank experts were even consulted about the decision, which was driven through by a small group of senior Treasury aides close to Mr Brown.

The Treasury has been officially censured by the Information Commissioner over its attempts to block the release of information about the gold sales.

The Information Commissioner’s decision itself is set to become the subject of criticism. The commissioner has taken four years to rule on the release of the documents, despite intense political and public interest in the sales. Officials have missed a series of their own deadlines to order the information’s release, which will now prevent a proper parliamentary analysis of the disclosures.

It can also be disclosed that the commissioner has held a series of private meetings with the Treasury and has agreed for much of the paperwork to remain hidden from the public. The Treasury was allowed to review the decision notice when it was in draft form – and may have been permitted to make numerous changes.

In the official notice, the Information Commissioner makes it clear that only a “limited” release of information has been ordered.

Ed Balls, who is now the Schools Secretary, Ed Miliband, now the Climate Change Secretary, and Baroness Vadera, another former minister, were all close aides to the chancellor during the relevant period.

If the information is not released by the end of April, the Treasury will be in “contempt of court” and will face legal action. A spokesman said last night that the Treasury was not preparing to appeal against the ruling.

Pound Slumps Over Fears Of Election Stalemate

(Telegraph) – THE VALUE OF THE POUND fell sharply on Monday as financial markets took fright at the growing possibility of a hung parliament.

Sterling fell by almost 3 cents, ending the day below $1.50 for the first time in nearly a year amid fears that Britain will be left with a weak government unable to cut spending and balance the budget.

Fears that no party would gain an overall Commons majority led to warnings that the pound was “staring into the abyss” and would fall further still. Figures suggest that traders are placing huge bets on more declines.

The markets’ growing fears about Britain’s economic prospects follow a slide in the Conservatives’ opinion poll lead over Labour. Recent surveys have put the Tory lead as low as two percentage points.

An Ipsos MORI poll last week suggested that Labour could cling on as the biggest party in the Commons.

Within minutes of London trading starting on Monday, the pound’s value began to slide.

At one point, it fell as low as $1.4781, the lowest level since May 1 last year. It rose slightly to finish at $1.4939 at 4pm — a fall of 2.85 cents. The slide also showed in the euro, which was worth 90.22p. Traders are unlikely to be reassured by a ComRes/Independent poll today that puts the Tory lead at five points, suggesting Labour would still have the most MPs but fall short of a majority.

Audrey Childe-Freeman, of Brown Brothers Harriman, a New York bank, said: “The risk of a hung parliament is increasing. You will need a government with a strong majority to push ahead with reforms that the UK needs.”

Simon Derrick, a currency strategist at Bank of New York Mellon, said: “The likelihood that we’re going to move to a rapid lessening of the deficit is being taken away.”

Mark O’Sullivan, of Currencies Direct, said: “As the pound drops, the currency markets appear to have run out of patience. Sterling could be staring over the edge of the abyss.”

Some investors fear that a hung parliament and a minority government would lead international credit ratings agencies to downgrade Britain’s status, making it more expensive to raise funds. A weak pound also drives up the cost of imports.

One international bank, Bank of Tokyo-Mitsubishi, predicted the pound would fall towards $1.40 this year.

A bank spokesman, Lee Hardman, said in a report that the worst outcome for the pound would be Labour clinging to power as a minority government because of the party’s high-spending agenda.

He wrote: “A Labour victory would further damage the fiscal credibility of the UK given their reputation for loose fiscal policy.”

Some currency traders also believe that the pound will come under greater threat if Greece’s crisis-stricken government is bailed out by other European Union members.

If Greece is rescued, some investors believe Britain is the European economy most exposed to market concerns about government deficits.

Gordon Brown angrily disputes comparisons between the UK and Greece, but independent analysts point out that the UK budget deficit this year is forecast to be 12.8 per cent of gross domestic product, comparable to Greece’s.

Downing Street and the Treasury refused to comment on the market movements. Privately, senior government officials have been contacting City banks to reassure them about plans to cut the deficit.

In a City speech last night, Lord Mandelson, the Business Secretary, accepted that Britain was “now unavoidably in significant debt”. But he said Labour was right to put off spending cuts until next year.

The Tories declined to comment. But the party has warned that the City will react badly unless they gain a substantial majority.

As the pound falls, the interest rate on gilts, British government bonds, is rising. That will ultimately push up the interest rates for loans.

Data from the Bank of England also showed that foreign investors sold off the most British bonds for nine months in January. Foreign investors sold £1.5 billion of gilts more than they bought during January, the figures showed.

On Tuesday the Treasury will sell off a new tranche of gilts. Investors said the strength of demand for those bonds would be a key indicator of market confidence in Britain.

UK House Prices To Slump As Credit-Crunch Returns

(Telegraph) – A SECOND MORTGAGE CREDIT-CRUNCH that will send UK house prices into a new tailspin is looming, economists and credit experts have warned.

The squeeze on debt will begin to be felt in January next year, when lenders are due to start repaying £319bn borrowed from the Government during the original crisis in 2007 and 2008 – a quarter of the UK’s entire £1.3 trillion stock of mortgages.

To pay the money back, credit-rating agency Moody’s said, banks and building societies may “limit their lending through tighter credit criteria” – in other words reducing availability and making mortgages more expensive.

Capital Economics added: “The prospect of a fresh mortgage credit squeeze later this year or during 2011 hardly inspires confidence in the durability of the housing market recovery.”

Credit is already tight. In 2009, societies removed £7.4bn from the mortgage market and approvals dropped to 1.3m, compared with 3.4m annually from 2005 to 2007.

Lobby groups have called on the authorities to delay the timetable but, last week, Mervyn King, Bank of England Governor, confirmed that the main state-backed liquidity scheme, providing £185bn of funding, would end in January 2011 as scheduled. The full £319bn must be repaid by April 2014.

Echoing a warning from the Council of Mortgage Lenders (CML) that removing Government support will choke off lending and raise mortgage costs, Moody’s said yesterday: “If debt markets cannot take up some of the funding gap left by Government schemes, the impact on the UK mortgage market will be significant… The contraction will put pressure on house prices .”

The £319bn “funding gap” is the difference between the amount the banks hold in retail deposits and the sum they have loaned. The gap used to be financed in the wholesale markets, which froze in August 2007. They have been replaced with emergency state schemes.

Illustrating the scale of the crisis, CML data shows that UK lenders raised £130bn in the markets in the 12 months before the crunch but just £11.5bn in the past two years.

Moody’s added that the benign environment of low interest rates and “other Government stimulus [which] have helped borrowers” may just have been “transitory”.

Rising bad debts would be particularly severe for building societies, which lost £7.6bn of deposits last year. Their credit ratings have also been slashed, effectively barring all but Nationwide, the largest society, from using the wholesale markets.

“Building societies have been the main victims,” Moody’s said. “Without access to cheaper Government-backed funding, many will find it increasingly difficult to survive.”

Societies are in discussions with the Financial Services Authority about creating a new debt instrument to shore up their balance sheets. Called mutual ordinary deferred shares (MODS), the debt will not mature and will pay an annual coupon that can be axed to preserve capital in extreme circumstances.

The FSA has not yet approved the instruments.

Bank Loan Rates Hit 9 Year High

(Telegraph) – BANK PERSONAL LOAN RATES have climbed to a nine-year high due to a rise in borrowers failing to meet their repayments.

Experts said banks are increasing rates to recoup the losses stemming from loan defaults.

Rising unemployment during the recession saw households struggling to meet the repayments on their loans.

The best rate currently available on a three year loan of £5,000 is almost 9 per cent – or nearly £160 – a month, according to personal finance website Moneyfacts.

It is in sharp contrast to rates of almost half that amount before the beginning of the credit crisis in 2007.

The rise comes despite the Bank of England keeping interest rates at a historic low of 0.5 per cent for the past year.

Rates were last at their current level nine years ago when the Bank Rate was a much higher 6 per cent, meaning banks have significantly increased their profit margins on personal loans.

Michelle Slade, a spokesman for Moneyfacts.co.uk said: “Unlike on a mortgage, there is no security that a personal loan debt will be repaid.

“In such a risk adverse market, lenders are only offering loans to the most creditworthy applicants and then at a premium.”

She added: “The post-Christmas loan sales that we see each January did not materialise, a further indication that lenders do not want to encourage unsecured lending.”

“Unemployment remains high and when people are struggling to meet repayments, unsecured lending is one of the first debts they stop repaying.”

Alliance & Leicester is currently offering the best deal on a three year £5,000 loan at a rate of 8.9 per cent, with monthly repayments of £157.97, while the best rate four years ago was 5.7 per cent, according to Moneyfacts. The rate was 9.4 per cent in January 2001.

Andrew Hagger of personal finance website Moneynet.co.uk said: “The risk of defaults is higher in the current economic climate, and with banks making such ultra thin margins, the rates offered a few years ago were not sustainable with any defaults soon wiping out the profit margin on the loan itself.”