Beware The Talk Of Green Shoots – There Is Still Worse To Come

EditorialTHIS WEEK, while the government has sought to ignore the public’s outcry over MPs’ expenses and clings firmly to the gravy train of its making, that other railway, owned by the UK’s Estate Agents, has been stoking-up its boilers to conduct another magical mystery tour to nowhere.

On 4th June, the Halifax said house prices rose 2.6% in May, the biggest increase since October 2002; while the annual rate of decline eased to 13.6%, from 17.7% in April.

The figures confounded analysts’ forecasts for a monthly fall of 1% and propelled the pound around half a cent higher against the dollar. But analysts cautioned against reading too much into one month’s data, warning price moves tended to be volatile during a downturn and that broader economic conditions are weak. Moreover, the Bank Of England maintained its historically low interest rate of 0.5% this week, and continued with its quantitative easing policy.

There was also bad news for the beleaguered construction sector, which saw its sharpest quarterly fall in output for 45 years in the first three months of 2009.

Construction output slid 9% below the final quarter of 2008 — the worst slump since 1963 and far worse than previous estimates of a 2.4% fall. The figure raises the prospect that the depth of the recession during the first quarter of this year could be even worse than the 1.9% forecast by the Office for National Statistics (ONS).

But while government politicians attempt to deflect attention from their own ignominy and close ranks around Mr Brown, it seems that no one is keeping their eyes on the financial hurricane that is still gathering on the economic horizon: Credit Default Options (CDOs).

The facts are: there is still worse to come; we are only addressing the first wave of problems — and the government has thrown all its resources at the crisis’ first symptoms, leaving nothing to address the financial meltdown of the insurance sector when it comes.

One would think that ‘Britain’s best chancellor,’ Gordon Brown, would be fully aware of the dangers that still await the economy. But that does not appear to be the case. Neither does it appear that we can take any comfort from his promises to ‘clean-up government.’

A close look at his new cabinet, after its reshuffle yesterday, provides an interesting insight to his claimed Presbyterian morality. And one is also forced to wonder how someone with such acumen for treasury figures, can make such infantile mistakes in claiming his own expenses.

Let us take a look at those new jobs first:-

  • Alan Johnson, the new Home Secretary, claimed just £43,596 for his second home in 2004-8 (making him an angel among demons).
  • Andy Burnham, the new Health secretary, had an eight-month battle with the fees office after making a single expenses claim for more than £16,500. The former Culture Secretary also avoided paying tax on a £16,600 property windfall and claimed for party political propaganda.
  • Yvette Cooper (the new Work and Pensions Secretary) and husband Ed Balls “flipped” the designation of their second home to three different properties within two years. She also bought expensive gadgets and claimed for party political propaganda.
  • Bob Ainsworth, Defence, claimed nearly £6,000 for the redecoration of his designated second home.
  • John Denham, the new Communities Secretary, claimed regular monthly mortgage interest of £1,284 in 2006. He also claimed £2,792 to damp proof his bathroom wall in 2007.
  • Liam Byrne, promoted Chief Secretary to the Treasury, claimed between £1,300 and £2,300 a month rent for various London flats — along with monthly grocery bills and other charges.
  • Ben Bradshaw, Culture, used his allowance to pay the mortgage interest on a flat he owned jointly with his boyfriend.

And those staying put are no better:-

  • Alistair Darling billed us for two homes at the same time by claiming parliamentary expenses for a flat that he let to tenants while also claiming living allowances for his grace and favour home in Downing Street. It had previously emerged that Mr Darling‘s stamp duty was paid by the public. He claimed the costs of accountancy advice using expenses intended to fund parliamentary and constituency offices and claimed four different properties as his second home in as many years.
  • David Miliband’s spending was queried by his gardener. He faces questions over party funding after it emerged he paid rent to the Labour Party from expenses. He also claimed for party political propaganda and was one of at least five ministers who paid a Labour MP’s husband for personal tax advice.
  • Jack Straw only paid half the amount of council tax that he claimed on his parliamentary allowances over four years but later rectified the over-claim. He also used his office expenses to pay for a degree studied by a member of his staff.
  • Lord Mandelson faces questions over the timing of his house claim, which came after he had announced he would step down.
  • Ed Balls and wife Yvette Cooper “flipped” the designation of their second home to three different properties within two years. Mr Balls, the Schools Secretary, also attempted to claim £33 for poppy wreaths.
  • Ed Miliband claimed just £7,670 on his second home allowance in 2007/08. He claimed just £7,670 on his second home allowance in 2007/08. But he hired Scarlett MccGwire for ‘consultancy’ services out of the public purse.
  • Shaun Woodward received £100,000 to help pay his mortgage.
  • Jim Murphy nominates his constituency home in Glasgow as his second home, where he claimed £780 a month mortgage interest payments in 2007-08. He also claimed £4,884 for bathroom renovation from B&Q; but paid £3,499 back into his allowance.

On a brighter note: at least someone is benefitting from the recession. Insolvency specialist, Begbies Traynor, may have poured cold water on recovery hopes as it predicted increased workloads ‘for several years to come’; but the Manchester-based firm said the division, which accounts for nearly 80% of group revenues, was expected to post full-year results ‘very substantially ahead of last year’.

In its trading update for the year to April 30, Begbies said it had continued to expand its insolvency service to ‘further exploit the favourable market conditions‘.

While we all wait with baited breath to see what becomes of Mr Brown next week, all politicians would be better employed quickly cleaning up their act and concentrating on the real issues facing the country and our island: the economy, its businesses and our vulnerable residents — whom all face the impending CDO storm.

… (BBC, 05/06/2009) – The Full Story: Brown’s reshuffle

… (11/06/2009) – ECB Fears Another Bank Crisis In 2010

… (Telegraph, 12/06/2009) – George Soros urges governments to outlaw ‘toxic’ credit default swaps