Europe's Banks May Get €200bn Bailout

A potential €200bn (£175bn) recapitalisation of the European banking sector loomed yesterday after the French and Belgian governments unveiled a rescue package for Dexia to stop the bank's woes from contaminating the wider financial system.











The planned boost to banks' capital reserves will see national governments in line to inject new cash if the lenders cannot raise the money in the market.

The urgency of increasing eurozone banks' buffers against losses was heightened by the near-failure of Dexia, the French-Belgian bank with big exposures to debt issues by Greece and other financially stretched countries.

The deal to bail out Dexia was designed to stop the bank's crisis spilling out into the rest of the banking sector. The fates of troubled eurozone countries and the region's banks are intertwined and threaten a vicious spiral of losses.

European leaders yesterday delayed by a week a meeting scheduled for next Monday to leave time to receive a definitive report on Greece's fiscal crisis.

Belgium will pay the Dexia Group €4bn for the Belgian retail banking business and provide 60 per cent of state guarantees for a "bad bank" to house Dexia's troubled assets. France will provide 36 per cent of the guarantees, which cover up to €90bn of funding, with Luxembourg supplying the rest.

Dexia's balance sheet of €518bn is bigger than the entire Greek banking sector and is a similar size to the total assets of institutions rescued in Ireland. The bank passed European "stress tests" in July that were meant to shore up confidence in the banking sector.

France and Germany have agreed that Europe's banks should be made to raise extra capital to cushion the impact of a Greek default. The International Monetary Fund has calculated that the region's banks need up to €200bn of extra cash to withstand losses.

Alistair Ryan, an analyst at UBS, said: "If capital is to have any chance of stabilising the banks, it will need to be large: we would start with the IMF's €200bn." He said eurozone governments could end up owning 40 per cent of the sector if they supply the capital.

Markets were calmed by hopes that France and Germany would finally come up with a plan big enough to support the eurozone's banks when Greek defaults – an event seen as inevitable.

The Eurostoxx 50 index closed up 2.3 per cent and the euro rose 1.9 per cent to $1.3648.

The cost of Dexia's bailout has raised questions about France's and Belgium's national credit ratings. France's Finance Minister, Francois Baroin, stressed that Dexia was a "unique" case and that other French banks would not need bailouts. However, many believe France's Société Générale and BNP Paribas would be part of the recapitalisation plan.

UK Economy Needs More Than Quantitative Easing To Recover

Britain's cycle of rising debt and dependence on consumption to drive growth make it unlikely to bounce back any time soon.












Britain has just been through what is now officially the deepest slump since the Great Depression – pictured, the unemployed marching in London in 1930.

Britain has just been through what is now officially the deepest slump since the Great Depression. Economic data from the pre-war era is not 100% reliable, but the drop in output after the sub-prime mortgage crisis appears to have been almost on a par with the contraction following the Wall Street crash. What's more, the recovery – such as it is – has been even slower than in the 1930s.

Talk of a lost decade is not misplaced. The economy is likely to grow by barely 1% this year and will struggle to do much better than that in 2012. At this rate of progress, it will be 2016 before output returns to its level when the recession started in early 2008.

This performance looks all the more miserable when you consider the amount of stimulus that has been thrown at the economy. Interest rates were cut to 0.5% in early 2009 and have remained there. The government has borrowed £390bn in total in the last three fiscal years. After printing £200bn of electronic money, the Bank has decided that is not enough and has announced plans to do a further £75bn of quantitative easing. The image that springs to mind is of John Cleese's response when Michael Palin's pet shop owner insists that were the Norwegian Blue not nailed to its perch "it would nuzzle up to those bars and 'voom'".

"Voom?! Listen mate, this bird wouldn't voom if you put 4 million volts through it. 'E's bleedin' demised."

This is not the view of George Osborne or Sir Mervyn King, although both admit it is taking a while for the dead parrot to awake. King said last week that the UK was in the grip of a financial crisis at least as severe as that in the 1930s and perhaps the worst ever. The chancellor has repeatedly warned that it will take a long time to recover from the debt binge of the last decade. Most post-war recessions were caused by a tightening of economic policy in response to inflation, but that of 2008-09 was the result of individuals and banks borrowing too much.

Still, the mainstream view is that sooner or later things will get back to normal. Over the past two centuries, western economies have always bounced back from economic traumas, no matter how severe. It is taken as read that industrial capitalism is inherently robust and adaptable. It is perhaps time to challenge this assumption.

The first piece of evidence comes from the Office for Budget Responsibility, the independent fiscal watchdog created by Osborne when he became chancellor. Forec asting has been outsourced to the OBR, which expects growth to be quite perky in the years ahead, leading to a fall in the UK's budget deficit. Crucially, though, this is only because the OBR expects household debt to rise in the years ahead, from £1.6tn in 2011 to £2.1tn in 2015.

Alert readers will spot the circular argument here. Britain has a personal debt bubble that goes pop. Government steps in to clear up the mess and ends up with record peacetime debts itself. The cure for this is to get individuals borrowing again. Well, maybe. All the signs are that this will prove harder than the OBR imagines, resulting in weaker growth and a higher budget deficit.

This leads on to a second point, which is whether the UK variant of modern industrial capitalism is really as robust and adaptable as our policymakers would have us believe. The story of the past 25 years and more has not been of a new model of sustainable growth emerging from the old. Not since the mid 1990s has there been a period where the motor of growth has been production rather than consumption. For the rest of the time it has been the tale of asset-price booms, the withering of the productive base and the onward march of big finance. Following the bubble to end all bubbles, the taxpayer had to dig deep to bail out the banks and prevent an even deeper recession, pauperising the state in the process. A model that relies on excessive personal indebtedness and ends with the innocent suffering from extreme austerity seems neither robust nor adaptable, just bankrupt.

Britain has not been alone in its long march down this dreary road, but it has travelled further down it than any other developed western country. King and Osborne agree something has to change. The upbeat vision of the future goes something like this: Britain, despite everything, has a sizeable manufacturing base and can enjoy the benefits of a 25% drop in sterling since 2007. The UK has top-notch scientists who will deliver a new wave of innovation. It has an independent central bank that knows what it is doing and a Treasury determined to keep interest rates low. The banking system is being repaired. Credit will eventually start to flow again, taxes will at some point come down, consumers will pay off their debts and firms will start investing.

The dystopian vision of the future sees Britain displaying many of the traits of a developing country. Here's what a typical developing country looks like. It is governed by an elite and there is a gulf between rich and poor. The elite extracts economic rents from the rest of the population, then salts them away in tax havens. Developing economies often rely heavily on one commodity, which crowds out activity in other sectors. To the extent that they have an industrial base, it is as an assembly plant for foreign-owned transnational corporations. The country tends to be deficient in physical infrastructure and human capital. All too often the best brains leave the country.Now consider Britain. The country is dominated by the City, which exerts an extraordinary amount of political power. There is a widening gap between rich and poor. The rich find ingenious ways to avoid paying taxes. Large parts of the country are dependent on the public sector, while the private sector is increasingly dominated by financial services. Industry makes up a smaller and smaller part of the economy and not one world-class manufacturing firm has been developed from scratch since the second world war. Firms complain they can't find skilled labour. The infrastructure is a joke – witness the lack of snowploughs to keep Heathrow open during last winter's snow. This is not an economy that is going places: it is going south.

Economic Crisis: What Is The End Game?

The cycle of woe and uncertainty surrounding the economic crisis continues, with gloomy surveys predicting a double dip, and even fears of a ‘Great Depression'. Sir Mervyn King, Governor of the Bank of England, believes this could be the worst financial crisis ever - even beating the 1930s for gloom - and the economy is in breakdown, so what we want to know is:



















How grim are things going to get?

Yesterday various reports told us the UK was bottom of the global confidence league, 43% of finance directors were preparing for a second recession while companies had delayed or cancelled £4.7bn of spending, reports the Daily Telegraph. "Today we report the OECD's leading indicator falling for the seventh month in a row, pointing to a slowdown, and the British Chambers of Commerce warning on stagflation."

Mindful Money asks commentators what they think will happen:

While we don't know if the recent injection of more QE will do any good, we do know that it automatically invites stagflation into our economy by pushing the pound down, say commentators.

According to Mindful Money economist blogger Shaun Richards, the most likely outcome if both politicians and central banks continue with the policies that they have now is, indeed, stagflation.

But he adds: "Those who look at the past I think miss an important point which is that it doesn't have to be 10% inflation to hurt people. A continuation of 5% a year combined with wages only rising say 2% will gradually turn the screw. Let's face it this has been happening already for the last couple of years so in general people are poorer."

Investors Chronicle says that Andrew Sentence, a former member of the BofE MPC believes that inflation is a bigger concern for the UK economy than a recession."High inflation and slow growth are inextricably linked."

What happens if stagflation hit?

Stagflation is a term which is formed by joining the words stagnation and inflation. It is used in modern macroeconomics to give a description of a period of uncontrollable price inflation combined with sluggish output growth. Stagflation raises unemployment.

The last time stagflation held the western world in a seemingly lethal grip was 30 years ago in the 70s and 80s, and it is threatening to emerge from the shadows again. Such fears are dismissed as irrelevant by those in favour of pumping money into the economy through quantative easing (QE), which they think will stimulate growth and avoid the dreaded ‘double-dip' recession. But so far, this policy has failed to prompt the necessary growth.

Thursday's announcement of another £75billion worth of QE played well with the stock market, but it is unlikely to cause much cheer for long. On the contrary it threatens to stoke inflation even higher, and meanwhile, there is the threat that growth stagnates.

"Stagflation" remains a word not uttered in the polite company of the financial world.

"But there remain only a few more tumblers to fall into place for a return to that awful word that conjures up images of the "malaise days" of the late 1970's and early ‘80s, where rising inflation and slumping employment tramped down economic growth," says CNBC,

However, some economists believe stagflation isn't something to fear at present.

Azad Zangana, European economist at Schroders, says: "While the current environment feels like a typical stagflationary environment, this is set to be temporary. The outlook is more positive as we expect inflation to fall from its current level back down to below 3%, mainly due to the passing of the VAT effect from the start of 2011.

"Meanwhile, we forecast growth to improve in the second half of 2012, and so the balance between real and nominal growth will improve. To conclude that we are entering a fully fledged stagflationary period, we would need to see significantly stronger inflation and wage inflation, and a continuation of weaker growth as seen in the 1970's. In our view, this is unlikely to occur."

What other threats may there be?

Another danger, however, is the rising threat of hyper-inflation. Shaun Richards says: "Whilst the self proclaimed "financial geniuses" persist in buying every gilt they can find there is a danger of this. Also it is the nature of things that when problems happen these days with the speed of trading it happens so fast that it is better not to run the risk at all. But I see this as rising but still low.

"So for now the danger is the silent drip drip of inflation and this is the enemy. The biggest problem of all is that as I keep pointing out it should not be a problem at this stage of the economic cycle and furthermore is being inflicted on us by individuals whose own contracts protect them against it.."

And if we're being warned that this crisis beats the 1930s, what happened then?

What happened in the 1930s, given the governor believes the gloom beats this decade? This was the ‘Great Depression', where in America millions were genuinely destitute, and unemployment hit a staggering 25%. Two million Americans tramped the country, sleeping rough as they looked for nonexistent work, and malnutrition was widespread.

Southern England escaped reasonably lightly, but in the North there were pockets of extreme hardship. On Tyneside the collapse of shipbuilding left unemployment standing at 70%, prompting the famous Jarrow march.

There were soup kitchens on the streets and millions of families were subsisting on bread and margarine. In Germany, economic misery that had begun with hyperinflation in 1923 helped another world leader to power in 1933: Adolf Hitler.

So is there any cause for hope with growth and falling inflation?

Henderson's chief economist Simon Ward gives his opinion: "Assuming that an EMU break-up is avoided, the global economy may start to regain momentum from early 2012. Such a scenario depends on the US economy doing better next year, as suggested by recent money supply strength...

"Another reason for thinking global growth could revive from early next year is a fall in headline inflation due to recent weakness in food and energy commodity prices. Rising inflation has been a major contributor to the recent economic slowdown by squeezing consumer spending power and forcing monetary policy restriction in emerging economies."

And anyway, nobody knows.

Mindful Money's resident psychologist Kim Stephenson says: "Let's assume that Shaun's right..

"Afterwards, lots of people who said that we wouldn't get stagflation but something else (hyperinflation or whatever) will say - "ah, well, it depends on how you define stagflation (or hyperinflation, or whatever)", they'll twist it round to show that they were right when they were actually wrong. Or they will point to some action or event - from the Bank of England, IMF, German Government, something, and say "if that hadn't happened, it would have gone the way I predicted". Human beings don't like being wrong and they will selectively remember what they want to remember to avoid having to admit they were wrong.

"Similarly, human beings like being able to predict and control their world . The economy isn't just out of our personal control, it's clearly out of control (or even prediction) of anybody like the Chancellor, the EU etc. that are supposed to be able to control it. That is very scary. It's like when you're a child and you realise for the first time that your parents don't know everything, can't solve every problem, can't ease the pain, stop the bully or get you on the team every time. It hurts and it makes us afraid, so we desperately cling to the belief that somebody can predict it (if not control it) and that we can have some measure of understanding of what is going on. To contemplate the fact that actually nobody controls it, nobody really understands it or can predict it and that most of our predictions are going to be wrong is simply too much to take."

Will The Increased Offer Of Declining Pound Save British Economy?

Forex news. World economy is under the threat of crisis, which can become the most difficult ever and have more large-scale consequences than the Great Depression in the 20th century. This is how the current situation is viewed by Mervyn King, the Governor of the Bank of England.










The decision to expand the quantitative easing program, which was taken by the Bank of England on Thursday, is predetermined exclusively by the difficult economic situation worldwide, particularly in Britain.

Drawing historical parallels, Mr. King claimed that the current condition of world economy is characterized by the total deficit of money supply. Therefore, Central Bank emission is aimed at solving this problem, and the Bank of England decision to increase money supply is to be regarded exclusively from this point of view.

However, global crisis can only be overcome provided that there is a consensus at the highest level.


It is predicted that the entire sum of emission, ₤75 bln., will be directed at stimulating economy and increasing money offer. At the same time, Mr. King assured that inflation is unlikely to result from held recession. In general, he predicts that inflation will increase up to 5 percent in the nearest future; however, next year it will stop increasing and start declining rapidly.

Meanwhile, the rate of British pound has stopped forming long-term wave А(С) or reduced wave С(С) within long-term bear motion, which will be proved by passing pivot Mf at the point of 1.5665. Experts of the Department of Masterforex-V Trading System claim that subsequent FZR will start long-term correction wave В(С). Passing the bottom line of 1.5271 will continue long-term decline; however, before this happens GBPUSD pair will meet support at the points, where pivots MF are placed, namely, 1.5468 and 1.5296.

Third Of Tenants Face Underoccupancy Cut

Cutting housing benefit for working-age tenants who underoccupy their homes will affect around a third of those living in social housing, the government has revealed.

An impact assessment from the Department for Work and Pensions estimates that limiting housing benefit payments to the number of bedrooms that a social tenant actually needs will affect 670,000 people living in social housing.


















The report, released yesterday as part of the government’s Welfare Reform Bill, says most tenants only underoccupy by one bedroom, and will lose around £11 a week in 2013/14, when the change comes into play.

Those with two or more bedrooms that they do not use will lose an average of £20 per week, the assessment says. It also found that tenants in the north, east midlands and Wales were more likely to be affected than those living in London and the south east.

Around 46 per cent of social tenants in the north east will see their housing benefit cut by around £12 a week, while only 19 per cent of London tenants will be affected.

The National Housing Federation condemned the plans. David Orr, chief executive, said: ‘Ministers have long promised to protect the vulnerable and yet these plans could force thousands of people to move out of homes they have lived in for many years.

‘As a result of these changes, thousands of couples are no longer able to offer their grown-up children a room to stay in should their circumstances change, and many single parents will be pushed away from friends, relatives and support networks.’

Under occupancy penalty could force struggling families into hands of loan shark.

Plans to slash housing benefit for hundreds of thousands of low income families could lead to a huge surge in the number of people turning to loan sharks and doorstep lenders as they struggle to pay their bills, campaigners warned today.

The Department of Work and Pensions (DWP) intends to use the Welfare Reform Bill to slash housing benefit for tenants living in homes deemed too large for their needs - even if they have lived there for decades.

The measure will hit 670,000 council and housing association tenants - a third of all working-age housing benefit claimants in the social rented sector across Great Britain.

The DWP has suggested that households seeing their benefit reduced - by 13% for those with one 'spare' room and 23% for two or more 'spare' rooms - should 'move to accommodation which better reflects the size and composition of their household' - or make up the shortfall from other income sources.

Each claimant is expected to lose an average of £676 a year if the Government succeeds in introducing the measure in 2013. Tenants will face a tough choice of either downsizing to a smaller home to avoid the penalty or staying put and paying a much higher level of rent from their own resources.

But even for those who do look to downsize there is by no means any guarantee they will find a smaller social home to move into. Around 180,000 social tenants in England are 'under-occupying' two-bedroom homes, but just 68,000 one bedroom social homes became available for letting in a single year (2009/10).

The average social housing household in receipt of housing benefit has an annual income of just £8,320 a year. The proposed 'under occupation' penalty will leave vulnerable families with a shortfall of £676 to make up from their savings or other allowances. Many are at risk of falling into debt because they simply would not have the money to pay all their bills.

Currently, around 2.5m people borrow from doorstep lenders at rates often in the region of 272% APR for new customers. A further 200,000 are estimated to borrow from loan sharks, who can charge anything up to 2,000% APR. A majority of those financially excluded are social housing tenants.

If a tenant took out a £700 loan to cover the under occupation penalty with the doorstep lender Provident, they would pay an APR of 272.2% on the loan, according to a typical example given on their website. That would mean repaying £1,274 back over the course of a year. For people going to illegal loan sharks the rate could be ten times as much.

Federation chief executive David Orr said: "The Government's plans to penalise hundreds of thousands of low income families who are adjudged to be 'under occupying' their property is harsh and regressive.

"In the vast majority of cases, people will simply not be able to make up the shortfall themselves and could end up being sucked into poverty and spiralling levels of debt.

"The Government has repeatedly said that it will look after the most vulnerable, but pushing thousands of people into the arms of doorstep lenders and illegal loan sharks is wrong and will lead to a huge degree anxiety for many of the poorest in our society."

Niall Cooper, National Coordinator of Church Action on Poverty said: "There is a real danger that people will be pushed into the hands of loan sharks by the housing benefit cuts.

"Many tenants are already struggling to make ends meet, and can ill afford the cost of borrowing from high cost lenders who routinely charge anywhere between 200%-2,000% APR for loans.

"For some, this will push them over the edge - into a spiral of debt, or even homelessness."

Dustbowl Britain: The New Depression

YES, it’s official: this could be worse than the Great Depression of the 1930s – men slumped on street corners and kids with bare feet.

Inflation, fascism and economic war in Europe. “This is the most serious financial crisis we’ve seen at least since the 1930s, if not ever,” says Sir Mervyn King, governor of the Bank of England.












Now, I may be missing something, but isn’t this just the kind of alarmist headline-grabbing remark that central bankers are supposed NOT to make in case it spooks the markets? It’s people like me who are usually criticised for resorting to sensational forecasts about Great Depressions and the like. The commentariat is being done out of a job by the godfather of prudence. Whatever happened to “Keep Calm And Carry On”?

The Prime Minister, David Cameron, is said to be livid. Only 24 hours before King forecast the end of civilisation as we know it, Cameron had told the country to “bring on the can-do optimism”. Well, not in the Bank of England, clearly.

It’s hard not to read this as an implicit condemnation of government economic policy. At the very least, the PM and his Chancellor look as out of touch as the Labour PM, Jim Callaghan, when he said “crisis, what crisis”, just as the International Monetary Fund was about to take over the reins of the British economy in 1976.

So what has spooked Mervyn? Well, it’s the Greeks isn’t it, stupid? Actually, it isn’t the Greek default – it’s us. Mervyn’s panic attack coincided with the news that ratings agency Moody’s had downgraded the status of a raft of British banks just as inter-bank lending was seizing up.

Essentially, Moody’s is warning people with money in banks including Royal Bank of Scotland, Santander, Lloyds and so on that they might not get it all back. Why? Because the banks are becoming stressed again, just like 2008, and there is no chance that this time the Government will have the will or the means to bail them out. There’s very little public money left and the economy is slowing to a halt, which will make it hard for the Government to pay its own debts, let alone that of the banks.

The bailout of the UK banks in 2008-09 required £1.3 trillion, according to Mervyn King’s own figures. And what did we get for putting up all that money? Well, Stephen Hester of RBS got £11 million last year. Bank bonuses accounted for another £13 billion. The rest disappeared into the bowels of our rapacious financial institutions.

So what now? Well, if there isn’t any public money, let’s just print some. The last round of quantitative easing – creating more money – placed £200bn in the banks’ accounts in 2009.

What happens is this: the Bank of England electronically creates money, which it uses to buy bonds from the banks. This injects funds directly into the banks’ balance sheets, wiping out their losses and “restoring the health of the financial system”. The money is supposed then to be loaned to small businesses and people wanting mortgages, thus boosting economic growth.

Except that this didn’t happen. The banks hoarded it instead and paid themselves huge bonuses. All QE1 really succeeded in doing was increase inflation to 5%, which is generally what happens when governments print money. This has eroded people’s savings, pensions and salaries, meaning that they haven’t been buying much in the shops. Which in turn is why the economy is sliding back into recession. Britain has one of the lowest growth rates in the OECD and has one of the highest fiscal deficits. Stick that in your budget, Mr Osborne.

So why on earth is the governor printing another £75bn of QE? It looks like the economic equivalent of blood-letting: a pointless medical procedure that only weakens the patient. This is the great unanswered question of the age: why are policy-makers unable to see any solution to economic crisis that doesn’t involve stuffing the mouths of bankers with gold?

When historians look back at this period they will criticise governments for inactivity, short-termism and denial. But they will condemn them utterly for throwing oceans of public money at the very people who caused the crisis and were least to be relied upon to resolve it.

Instead of handing money to banks, in the vain hope that it will boost economic activity, why doesn’t the government hand it to poor people?

I’m not joking. At least lower-income groups can be relied upon to spend the cash in the high streets – in shops like Tesco, which has just announced its worst sales figures for 20 years. Give them VAT rebates, interest-free loans, tax “holidays”, elderly care grants, home improvement loans – anything to get money into the system.

Giving liquidity to people who don’t have it is the surest possible way of boosting economic activity. QE is like trying to get the car started by giving money to oil sheiks in Saudi Arabia.

Of course, the bankers would respond that, yes it’s all very well giving money to people other than us. But if you don’t hand over your cash, we’ll just go bust like Lehman Brothers, and that will cause a global financial and economic collapse. Ha ha.

And of course, they’re right – they are too big to fail. If, say, RBS went under, the shockwaves would be so great that bank lending would halt overnight. This means that companies which depend on short-term loans from banks to manage their accounts would go under too. International trade would freeze because there would be no credit for exporters.

There would also be a run on the banks, as happened in October 2008, when people and businesses withdrew their cash from banks like Northern Rock and HBOS because they didn’t believe their funds were safe. In 2008, according to the then chancellor, Alistair Darling, Britain was 24 hours away from the ATMs closing and people being denied even cash withdrawals.

Could we really be going back to all that? Well, yes – the Belgian-French bank, Dexia, has just gone bust for the second time in three years because people started withdrawing funds at an unsustainable rate and its share price collapsed. It could be the first of many, and governments cannot bail them all out.

Which means that if you are lucky enough to have more than £85,000 in any one bank – the limit of the deposits guaranteed by the government’s deposit insurance scheme – then you’d be well advised to get it out sooner rather than later.

I know that sounds alarmist,

inflammatory, but listen closely, and that’s what the Guv’nor is saying.

But there is an alternative. Instead of pouring more printed money into the banks, why not nationalise them completely? We already own RBS and most of Lloyds. The nationalised banks could be used to set up smaller, more responsible banks with a remit to lend to industry rather than speculate on derivatives and the commodities market, which is what they have been doing since 2009.

If the financial crisis really is as bad as King says it is, and we are about to drown in a hyperinflationary sovereign debt crisis, then the Government would be able to freeze asset deposited in the banks and conduct a kind of debt “triage”.

Those with more than £85,000 in deposits would be required to accept a proportionate reduction in the value of their deposits in order to stabilise the financial system and remove the debt burden on the state. This could be done by converting bank deposits into government bonds, redeemable at a later date. This is rather like QE in reverse. Needless to say, all bank bonuses would be scrapped, and bankers put on civil servants’ salaries.

There would be howls of anguish from the rich at their wealth being hijacked in this way. But they should be told that the alternatives are much worse: a run of bank failures, which means they would lose ALL their funds over £85,000. Bondholders would not just have a haircut – they would be decapitated by default or by hyperinflation.

There is still a great deal of wealth in Britain – £7 trillion in household assets alone, according to the Office for Budget Responsibility – but this is largely held by the very wealthy and “sterilised” in property and other assets. If we are facing the ultimate crash, the Government will have no choice but to commandeer these resources and use them constructively to manage the national finances. President Franklin D Roosevelt did something similar in 1933 when he ordered all the gold held by individuals to be deposited with the government.

I doubt if any politician has the cojones to put this kind of scheme forward right now – most of them are intellectually in hock to the City of London anyway. But what is not in doubt is that the Bank of England is already thinking the unthinkable.

Various schemes for crisis debt restructuring are surely already being run through the Bank of England’s computer models, and though they can’t admit it, this will inevitably involve some control of bank deposits and an orderly run down of debt. The Government will probably opt to raid pension funds first, because they are harder to move offshore. This is what the Argentine government did in 2001 when it defaulted.

What the Bank of England governor is warning of is a truly apocalyptic financial event. The Government has already seized large parts of the banking system and resorted to money printing. It may not be long before it breaks into people’s accounts directly. You have been warned.

UK Politics: Recovery Postponed

Dismal growth prospects have sharply redrawn Britain’s political landscape, write George Parker and Elizabeth Rigby.











Political cover: David Cameron, right, seen with Nick Clegg, has come to realise how useful his junior coalition partner is in protecting him from his own party's ranks - not least over issues such as Europe, tax and health.

This week Britain’s cabinet was confronted with a bleak political picture. In cold and precise terms, George Osborne, chancellor of the exchequer, told colleagues in Downing Street on Tuesday that UK growth prospects were deteriorating and did not look like they were coming back soon. The significance of his analysis is only slowly being grasped by Britain’s political classes: everything has changed.

“The reality we face is stark,” confirmed Nick Clegg, deputy prime minister, in a speech on Wednesday that reflected the growing sense of foreboding around the coffin-shaped cabinet table. “There is now little margin for error,” he added. One minister confirmed that Britain was facing “a terrible situation”; another said it felt like 2008 when the financial crisis hit.

Much has changed during Britain’s long and dismal summer. Mr Osborne confirmed to ministerial colleagues that the eurozone crisis, shrinking export markets, the US slowdown, high inflation and rising commodity prices had all taken their toll, draining demand from an economy already sapped by the biggest fiscal consolidation of any major economy.

The riots that ravaged British cities last month may have been little more than mass copycat looting, but images of burning buildings and police struggling to regain control of the streets were reminiscent of the conflicts that scarred cities across the country during the brutal recession of the 1980s.

As Britain’s politicians prepare for the annual party conference season, the implications of economic slowdown – and the possibility of another recession – are slowly becoming clearer. The economy will dominate debate and shape strategy; a new phase in politics is opening up.

To understand the scale of the shift, consider the outlook at the start of the year. The Treasury was drawing up plans to start selling its stakes in banks, nationalised during the crisis, in 2012 in a sign of confidence returning to the City of London.

Government advisers talked confidently of next year’s Olympic Games in London as “a pivotal moment” – a shining light on the horizon – when austerity Britain would regain its verve. (Queen Elizabeth’s diamond jubilee would further lift the spirits.) All parties expected to fight the 2015 general election against a backdrop of plenty that would have followed a few years of tough-but-necessary choices.

Now the bank sales have been shelved until after the election and few in the cabinet mention shining lights. Party strategists have suddenly stopped talking about “spending the proceeds of growth” in the second half of the parliament.

Of course, the picture could change dramatically again, but for now Mr Osborne’s grand political plan – two years of pain, three years of recovery – seems in doubt. Ministers admit that come the election, the economy may still be mired in low growth and few now expect the independent Office for Budget Responsibility’s forecasts to be achieved. As recently as March, the OBR forecast growth of 1.7 per cent this year, 2.5 per cent in 2012 and 2.9 per cent in the two years before the election. Current consensus forecasts see 1.3 per cent growth this year and 2 per cent next year.

The strains were showing in the Conservative-Liberal Democrat coalition even before the economic outlook worsened; now the two sides will have to march together through what could be almost four years of economic hardship, punctuated by public sector strikes over the cuts.

Pressure is also mounting on David Cameron, prime minister, to do something to cheer the rightwing of his Conservative party, which has applauded the government’s tough economic message but feels badly let down on other issues, including Europe, tax, schools and immigration.

Tim Montgomerie, editor of ConservativeHome, an activists’ website, says Mr Cameron has been able to contain this unrest by pointing to the coalition’s success in sticking to its central mission: “sorting out the mess” in the public finances left by his Labour predecessor Gordon Brown. “That could change if the economy goes wrong and the coalition gets the blame,” Mr Montgomerie says.

Mr Cameron is drawing up a growth strategy built around delivering big infrastructure projects, cutting red tape and reforming planning laws. But he is under growing pressure from some in his party to emulate Margaret Thatcher and administer the type of radical economic shock therapy that she delivered as prime minister in the 1980s. Suggestions include cutting the 50p top rate of tax, scrapping European Union labour laws, reintroducing selective grammar schools and engaging in ambitious supply side reforms.

Tory MPs have been scrambling to put their advice to Mr Cameron down in writing before the conference season. David Davis, who ran against the prime minister for the party leadership, has co-edited a book – The Future of Conservatism – claiming that Tory ideals have been “significantly diluted” by what he once dubbed the “Brokeback coalition”.

Priti Patel, one of five new Tory MPs to contribute to After the Coalition, another book, says: “Being in coalition should not be an excuse for holding back on many critical issues such as sentencing, immigration and Europe. David Cameron is in charge and with a Conservative majority in cabinet there is no reason why the status quo should become the default option.”

. . .

The grumpy mood on the Conservative benches is reinforced by a suspicion that Mr Cameron – who describes himself as a “liberal conservative” – is using the Liberal Democrats as cover for refusing to deliver a more rightwing agenda. Indeed one Tory official admitted the coalition had been “brilliant for us” because it allowed Mr Cameron to stick to the centre ground.

The prime minister is also blamed by some Tory MPs for a big review of parliamentary constituency boundaries – almost everyone is affected; some will lose their seats altogether – while others complain that the well-heeled Mr Cameron is remote and disconnected from the grassroots. “We’ve been taken over by a Bullingdon Club clique,” complained one senior Tory MP, referring to Mr Cameron’s past membership of a plummy-yet-boorish Oxford university drinking club. “It’s almost Edwardian.”

Mr Cameron’s team rejects this as an inaccurate caricature, pointing out that the prime minister has been dining with MPs and visiting the House of Commons tea room regularly – a classic manoeuvre to try to quell unrest in the ranks. But he knows that the ongoing economic gloom – manifested in rising unemployment and falling living standards – will only make party management harder.

Nevertheless, Mr Cameron appears unperturbed for now. That is in part because he believes he can win the 2015 election even if the economy is in the doldrums – provided he can blame external factors and claim that he had taken the tough action on the deficit to ensure things were not even worse. Clinging to the mantle of “economic competence” has become yet more essential to the prime minister.

Under Ed Miliband, the Labour opposition has so far failed to regain its reputation for economic credibility, which suffered under what Alistair Darling – the party’s last chancellor – has admitted was a period of “chaos and crisis” during the last years of Mr Brown’s government.

One coalition minister says: “All our feedback tells us that people don’t like what we are doing but they attach no credibility to the alternative. I think people have made up their mind about the Labour leadership.”

Mr Miliband must give a strong performance at his own party conference to reassure the doubters, fleshing out an alternative economic Plan B that does not simply remind voters that it was Labour which presided over the surge in borrowing in the first place.

Shaping Labour’s economic strategy is Ed Balls, a former Brown lieutenant, who has long argued that the coalition’s rapid deficit-reduction plan would hobble the economy. He talks of a “growth crisis” and told the BBC this week: “The evidence is clear that I was right and they were wrong.” But being right may not be enough.

Lord Mandelson, former Labour business secretary, says his party must recognise “the economy will not be growing quickly and real incomes will not be rising” at the next election. Writing in a new pamphlet called The Purple Book, he argues Labour must develop policies for tough times, including plans to modernise public services, to keep taxes low and to keep the economy competitive.

. . .

For Mr Clegg the economic downturn presents a major political challenge as he prepares for his Lib Dem party conference in Birmingham next week. Members of his centrist party have been prepared to go along with the coalition’s tough fiscal plan on the understanding that things would be better by 2015. Now what?

The deputy prime minister is determined to stay the course; he believes there is a big political prize in securing a record of economic competence in government. But Lib Dem strategists admit they were betting on fighting the next election in good times and are having to rethink.

“The Tories can get away with an election in bad times, because they can say they are still trying to clear up the mess left by the socialists,” says one party strategist. “It’s harder for the Lib Dems, we are a party which thrives on optimism – that may be in short supply.”

To raise morale, Mr Clegg has sharpened his party’s identity in the coalition, fighting to water down “Tory” health reforms, opposing the removal of the 50p tax rate or the introduction of private profit into the schools system. Like Mr Osborne, he needs to show that the coalition has a strategy for growth to counter the downturn.

But Mr Clegg has always warned his party not to think of itself as an “internal opposition” in government. His allies say he needed to “turn up the dial” in differentiating himself and his party from the Tories following dismal local election results – and defeat in a referendum on electoral reform, a core Lib Dem issue – in May. But, they predict, he may turn the dial down again once the conference season is out of the way. “The next year is going to be very tough,” says one ally. “We’ll have to knuckle down and get on with the job.”

Europe: Sceptical genies brood in the bottle

In Brussels every crisis is an opportunity to further European integration. But at Westminster, particularly among most MPs in the Conservative party, the eurozone crisis offers a chance to move in the other direction. For them the current euro troubles are a rare opportunity to take Britain further from the centre of a European project they detest.

For David Cameron, prime minister, turmoil in the eurozone is thus not only an economic danger, but a political one too. Once the Tories were split on Europe; now almost the whole party is eurosceptic. (This week at least 100 MPs discussed a new “moderate” agenda to reclaim powers from Brussels.)

Mr Cameron’s problem is managing this visceral dislike of Europe. “I was told never to seek a meeting with David to discuss Europe,” says one Tory minister. “He thinks that even wanting to talk about Europe is swivel-eyed.”

The prime minister – who describes himself as “a very practical eurosceptic” – fears that when the Tory party talks about Europe, it starts to sound like a strange cult, out of touch with voters’ real concerns such as health and crime.

Tory MPs see the negotiation of a possible new European Union treaty to reinforce eurozone integration as their moment. They want Britain to use its veto to take back powers from Brussels on issues such as criminal justice, employment policy or immigration. Their hopes were raised last week when George Osborne, chancellor, said such a treaty was “on the cards” to pursue the “the remorseless logic” of monetary union: closer fiscal union. He knows that the tighter the core of the EU, the less likely Britain would ever be part of it.

Mr Cameron hopes that the crisis can be addressed without treaty change – a view shared by Herman Van Rompuy, EU president.

Tory demands for the repatriation of powers would strain coalition relations with the pro-European Liberal Democrats, who say Britain should be helping to solve the eurozone crisis.

So far Mr Cameron has managed to hold his party and the coalition on Europe. But many Tory colleagues believe he is hiding behind the Lib Dems as an excuse for not delivering the European policy they demand.

UK Lags Behind In Child-Parent Wellbeing, Says Unicef

Children and parents in two contrasting European countries, Sweden and Spain, have significantly higher levels of wellbeing than those in a third, the United Kingdom, according to a survey and research by Unicef, the United Nations Children’s Fund.


















The survey examined attitudes towards materialism and inequality and found that parents and children had markedly different attitudes towards material possessions.

It was carried out among some 250 children, ranging in age from eight to 13, from all social backgrounds in the three countries. The findings were further discussed in three steering groups, one each in England, Spain and Sweden, of 14-year-olds. Twenty four families in the three countries were also observed and filmed.

“The message from them all was simple, clear and unanimous,” according to the Unicef report, “their wellbeing centres on time with a happy, stable family, having good friends and plenty of things to do, especially outdoors.”

Given the links, in terms of history, cultural and social policy thinking, between Ireland and the UK, the survey is likely to be of interest in Ireland, in particular to social workers, childcare specialists and policy analysts.

“Family life in the three countries was strikingly different,” says the report. It identified pressure on parental time in the UK, linked to long hours and both parents working outside the home, as having an impact on children, with parents trying to “make up” by buying things for their children.

“In the UK homes, we found parents struggling to give children the time they clearly want to spend with them whilst in Spain and Sweden family time appeared to be woven into the fabric of everyday life. We also noticed that the roles played by mothers, fathers and children within the family and the rules which governed family life were much more clearly defined in Spain and Sweden than in the UK.

“Moreover by the time many British children had reached secondary school, their participation in active and creative pursuits – pursuits that children said made them happy – had in fact dwindled, whilst this occurred less in other countries . . .

“Behind the statistics, we found British families struggling, pushed to find the time their children want, something exacerbated by the uncertainty about the rules and roles operating within the family household. And we found less participation in outdoor and creative activities amongst older and more deprived children.”

On materialism, the survey found that British children and parents both had problems.

For the majority of eight- to 13-year-olds in all three countries, “new toys, fashion items and gadgets were not central to their wellbeing”.

“Rather than wanting to acquire things for their own sake, material objects and consumer goods tended to fulfil a range of purposes in children’s lives: utilitarian, symbolic and social,” says the report.

“However, whilst most children agreed that family time is more important than consumer goods, we observed within UK homes a compulsion on the part of some parents to continually buy new things both for themselves and their children . . .

“We also noticed that UK parents were often buying their children status brands believing that they were protecting them from the kind of bullying they experienced in their own childhood.

“This compulsive acquisition and protective, symbolic brand purchase was largely absent in Spain and Sweden where parents were clearly under much less pressure to consume and displayed greater resilience.”

On inequality, in the UK this tended to be defined in terms of money and material possessions.

“Whilst the links between brands and inequality created tensions and anxieties for children in all three countries to some extent, these feelings were only shared by UK parents. Swedish and Spanish parents seemed not to belong to a “consumer generation” in the same way.

“Deprivation for Swedish parents was understood as living in an area where personal safety was threatened, whilst for Spanish mothers not being able to spend time with your children was seen to confer disadvantage relative to others.

“In the UK, inequality was also seen in access to outdoor, sporting and creative activities, with poorer children spending more sedentary time in front of screens whilst the more affluent had access to a wide range of sports and other pursuits.”

Children’s Well-being in the UK, Sweden and Spain: the Role of Inequality and Materialism (Unicef; June 2011) is a qualitative study and may be read online in full at unicef.org.uk/Latest/News/

Alistair Darling: 'You Can't Just Tell Half The Story And Still Be Credible'

With the publication of his new memoir, the former chancellor talks about Gordon Brown, economic meltdown and the time he was locked out of the White House.












Alistair Darling's memoir contains an anecdote of such peerless absurdity, you literally could not make it up. The chancellor and Gordon Brown were visiting the White House in November 2008, for a crisis summit of leaders and finance ministers, and set off in a cavalcade from the British embassy. But such was the size and self-importance of Brown's entourage, who piled into the fleet of cars, that the chancellor was left to find himself a space in the very last car. When Brown's car pulled up before the steps of the White House, and the cavalcade drew to a halt behind, Darling was still at the back of the queue, stuck outside the gates on the street. He got out, walked up the drive to the door, and found it closed.

"It was a very funny feeling. You've seen the White House all your life, and then you're walking up the steps of this house, and the door's shut, and there's all the world's press behind you taking pictures, and I thought, well, what if no one answers? Because you'll look bloody silly walking back down the stairs."

What went through his mind? "Well, my thinking was – and I never thought I'd think this – I've never been so glad to see President Bush. Because the door opened, and there was the proprietor, the president of the United States."

As he recalls the moment he has a dry chuckle – the wry sort of funny-old-world laugh of someone long past the point when anything could upset him. But he wasn't laughing at the time, was he? "Well, as I walked up the drive, and especially when I had to negotiate terms with a guy with a machine-gun, no, at that stage I was getting very pissed off. I thought this is ridiculous. I just thought this is so typical of what is happening now. You know, [Brown's entourage] were totally absorbed, it was like they were there with the Sun King."

What did he say to Brown when he got inside? "Nothing," Darling says. "I don't think he even noticed."

There was always a touch of the eternal bridesmaid about Darling. He jokes that his obituary will bear the epithet A Safe Pair of Hands, which I suspect he would consider a compliment, and he has seemed most at ease in the background. But before his memoir even went on sale this week, pre-orders alone had already put it second place on Amazon's bestseller list – and its revelations about the depths of dysfunction within Downing Street have made it a political sensation. When I congratulate him on producing a bestseller he looks rather boyishly pleased, but says he's worried that people think he's written a gossipy Westminster kiss and tell – when he never really wanted to write about his relationship with Brown at all.

"I wanted to give my account of the banking crisis, to leave my record. But because the banking crisis became an economic crisis, the two are totally inter-related, and you can't tell what I did as chancellor without touching upon the other crises that hit the government. You just can't tell half the story – and to be at all credible, I have to touch on things that I still find difficult."

It may have been difficult, but he looks so much more relaxed than he ever did in office that I wonder if the memoir became a form of therapy, or at least catharsis. "No," he says very quickly. "No, I'm not someone who needs a cathartic moment." The denial has a hint of Scottish distaste for such self-indulgence – but it's so swift that I'm not entirely convinced."Well, maybe I actually do and I don't know," he concedes. "But it didn't start out that way."

He had to explain his difficulties with Brown, he says, because otherwise none of his story would make sense. For example, "You can't explain the reaction to the interview I did with you three years ago without going into what I regard as the more unpleasant aspects of political life." In August 2008 I interviewed him at his croft in Lewis, and his assessment of the economic crisis facing the world – "arguably the worst in 60 years" – provoked an almighty commotion, fuelled largely by Brown's own aides, who briefed the media that Darling was either deluded and plain wrong (or naive and unprofessional), or treacherously disloyal. Darling later described their assault on him as "the forces of hell".












Darling in Washington in 2008 at the summit during which he got locked out of the White House.

"In some ways," he says, "I owe a debt of gratitude to the briefers. If they had done the usual thing – said they were happy with the chancellor, he's doing his job – it would all have blown over. But as it was it will be remembered. Very few things in politics cut through – and this one did, it cut through with a vengeance. The only critical thing you could say, really, is that I should have said 100 and not 60 years."

What a lot of people won't understand, I say, is why you didn't ring up Brown and say I'm the chancellor, tell your minions to shut up? "Well, you know, I did. I said this is just making it worse for everybody." So what did Brown say? "He just said it wasn't his people. I said well, if it isn't then some imposters are making a remarkably good fist of it. Anyway," he says, breaking off with a brisk shake of the head, "this is just – " but then he stops again. "No," he corrects himself, "it's not water under the bridge, because that weekend really scarred me."

He insists that he didn't think he had said anything controversial, let alone disloyal. Amid the furore, however, some critics interpreted his interview as a calculated strategy to undermine Brown. In fact, Darling says, he hadn't wanted to give an interview at all. He just wanted to go on holiday, to his family croft on Lewis.

"So my cunning plan was to say you'd have to come to the Outer Hebrides; I hoped the Guardian's finances wouldn't stretch to that. But it clearly didn't work." Does he regret what he said? "No, I thought it was important to tell the truth." The problem was, Darling's view of the truth differed radically from Brown's, who was busy telling journalists that the credit crunch would be over within six months.

It was the first very public sign of a clash between No 10 and 11, but Darling had realised he was no longer part of Brown's inner circle as soon as they became neighbours. He still doesn't know why. Had Darling shared, I ask, his colleagues' worries about Brown's famously "psychologically flawed" character before he succeeded Tony Blair? From his rather vague and evasive answers, I'd say that he did not, and was as surprised as many others when behaviour he'd attributed to Brown's grievance with Blair – secrecy, tantrums, paranoia – didn't vanish with his relocation to No10.

The contrast between the two personalities that emerges from Darling's memoir is so extreme, the miracle has to be how much they managed to achieve in spite of it. The person who Darling says kept him sane was his wife Maggie, an infectiously gregarious and irreverent former political journalist whom I met in 2008 on Lewis. At the time I remember wondering how on earth she could put up with Brown, and marvelled at the difference between the two families. I last saw her during the general election campaign, when she invited some women to No11 for drinks. As guests arrived she plonked their coats on the bed in their bedroom, for all the world as if it were a student house party. At some point in the evening her husband came home, and after a bit of chat went to bed. Later, another guest – a little worse for wine – tottered down the hall to retrieve her coat, swung the bedroom door open, and found herself gazing at the chancellor of the exchequer in his pyjamas in bed. As she backed out, doubled over with mortification, nobody was more convulsed with giggles than his wife.

When they left Downing Street for good a few weeks later, he says there was no lump in his throat or tear in his eye. In fact, after five bizarre days of post-election shenanigans between the party leaders, Darling was so fed up he wanted to leave by the back door. Did it feel farcical by then? "It did. Sitting in the flat, watching the TV, with helicopters going round and round overhead, and they were starting to film the back door. So Margaret said: 'This is ridiculous, we're going out the front door.' And she was right. She said we did our best for all these years. Why would we sneak out the back door? Let's leave with our heads high."

But he says no bit of him was secretly relieved to have lost the election. So what will he do instead of frontbench politics? "You continue to do backbench politics." Then if this is the end of your ministerial career, I begin to say – but he quickly interrupts.

"Well, it may not be."

Normally, when ministers lose office and write their memoirs they are practically giddy with indifference to any ramifications. Darling doesn't give the slightest impression of having detached from political life, or stopped caring for a minute. "One of the things I've noticed in myself," he agrees, "is that in some of the dark days in government, you could hardly bear to listen to the radio or watch the telly. But I've noticed since being in opposition I probably listen to more current affairs than I ever did. My interest in politics is as alive as it's ever been."

Interest in Darling remains as alive as ever as well. In the mounting economic crisis, he is looking like one of the few politicians who might have a clue what to do, and the day after we meet I run into a Tory MP who says she can't wait to read his book. An awful lot of her colleagues, she adds, believe it's only thanks to Darling that the country isn't in even more of a mess.

"Yeah, but people are always nice to you when you leave," Darling says when I cite his widespread popularity. "It's like at a funeral. People are always terribly nice about the deceased even though they had plenty to say when you were alive."

In 2008 I asked him if leading Labour held any appeal to him, and he said no. "Well," he laughs, "I'm consistent. No, I'm not remotely interested in that, nothing's changed there. To be leader you have to want to do it, seven days a week, 24 hours a day, and I don't. I really don't. And on the way down from Edinburgh last week, when the phone started going about the leaks of my memoir, it brought back so many memories. And actually, I've enjoyed the last year. Because it's great when people don't phone you."

But he admits: "There are lots of times in the last year – or even now – when I would like to be involved and in government again. What is so frustrating is that we were actually coming out of recession when we left office."

In Darling's view, countries across Europe are making the same mistake as Britain's government by imagining that cuts will reduce their deficits. "That's true when the economy is working at full capacity. But it is not true when it isn't." There is still time, he says, for George Osborne to change course and invest public money to boost growth. But is that politically plausible? "There's lots of things you can do in politics if you execute the manoeuvre in an elegant enough manner."

Nonetheless, he acknowledges that the Tories have convinced many voters that the deficit is not a consequence of the recession, but of Labour's profligacy. This, he insists, is categorically untrue – "But you're right, it's a huge political problem for us. One of the challenges for both Eds is to cut through that, because I think the policy we have of a more measured approach to these things is perfectly credible, and independent commentators will say the same thing. There is every chance, the ground is there. But like everything else in politics, you have to take your moment."

Would Labour be doing better under David Miliband – the candidate Darling endorsed last year, and met in secret the previous year to discuss deposing their leader? "It's impossible to tell," is Darling's diplomatic reply. What about the claims made by Daily Telegraph bloggers and Tory cabinet ministers that Darling's book has damaged Labour's chance of re-election? "I certainly hope not. Would I write it in five years' time, just before the next election? No. That would be damaging. But my book's main purpose was to chronicle the economic and banking crisis."

He thinks Europe is on the brink of another spectacular crisis, because Greece cannot possibly deliver its austerity package, and Europe's leaders are incapable of taking unified action to prevent catastrophe. "I know the EU sufficiently well," he says wearily, "and I've been in enough meetings to know that nothing will happen until it looks like the thing's about to blow up." What the eurozone urgently needs, he says, is a plan – any plan.

"Markets are rational and irrational at the same time. They are irrational in saying they want to cut debt immediately and they want growth, because you can't get the two. Markets are now worried about growth. What's really spooking them at the moment is that in Europe they don't see a plan, they see the eurozone coming together, making an announcement, and a few weeks later it seems to be unravelling. That is what really throws people. What people are looking for is, what is your plan?"

As for himself, he says his only plan for now is to make no plans. He doesn't know if or when he would return to the frontbench, or what else he would do. For a long time it was always assumed that if anyone was going to follow Downing Street with a major international finance position, it would be Brown. No one predicted that it would be Darling – but when I ask if he'd be interested in such a post, his reply is interestingly evasive. "Well, there aren't many of them – so, um, you know," and he lets the sentence tail off into silence. But according to the Westminster rumour mill, Osborne is ready to nominate Darling to lead the IMF if its new incumbent, Christine Lagarde, is forced to stand down in the face of a corruption trial in France.

"It's news to me," Darling says. "No, there have been no discussions about it – and nor will there be."

Would such a post appeal? "Er, er, well, put it another way, I need something to keep my mind occupied. I'm young, and I'd like to practise what I preach and work well beyond 65. So what I'll do I don't know."

Scottish Tory Leadership Candidate Rejects Call For Greater Economic Powers

Ruth Davidson distances herself from rival contender Murdo Fraser's proposal to scrap ties with UK Tory party.












Ruth Davidson the first openly gay Tory to stand for the party leadership, opens her campaign.

A contender to become Scotland's next Tory leader has rejected demands for far greater economic powers for the Scottish parliament in an open appeal to traditional Tory voters.

Ruth Davidson, at 32 the youngest of the three candidates and the first openly gay Tory to stand for the party leadership, would draw "a line in the sand" at new powers to give modest control over income tax and borrowing.

She also repeatedly distanced herself from Murdo Fraser, the favourite, by dismissing his dramatic proposal to scrap the Scottish Conservative and Unionist party and replace it with a centre-right party separate from the UK Tory party.

That was a "distraction" which would "tie the party in knots" for a year, Davidson said before rejecting the suggestion for more financial autonomy for Scotland, also supported by Fraser.

Portraying herself as the fresh-faced saviour, Davidson said: "Under my leadership, there will be no existential crisis, no wringing of hands. [The] values which made me an instinctive Conservative - that drive my politics - are shared by Scots the length and breadth of the country."

She predicted, however, that it would take a decade before the Tories were strong enough to share power at Holyrood. Her primary objective was to defend the United Kingdom in the run-up to the independence referendum being proposed by the Scottish government.

She described the measures being debated in the Lords to give Holyrood powers over income tax and new £2bn borrowing powers as a one-off "MOT" for the Scottish parliament.

She also dismissed proposals to set a second question on increased financial powers at the referendum.

"I believe that the United Kingdom is a force for good in this world. I believe that we in Scotland walk taller, shout louder and stand stronger for being part of that union," she said, as she became the last of the candidates to launch her campaign.

At the referendum, there would be "no half-way house, no second question, no march to fiscal autonomy. When the referendum is done and Scotland in the union has won the day, let that be an end to it."

Davidson is said to be the candidate most favoured by David Cameron but is the least experienced and least well-known.

Fraser has held a series of prominent party positions, been an MSP for 10 years and is deputy leader at the Scottish parliament.

Jackson Carlaw, the other contender, is seen as the most right-wing and traditional. Twice elected deputy chairman of the Scottish party and a list MSP since 2007, he has a strong base in the west of Scotland party but is seen by senior party figures as too reactionary to suit modern Scottish voters.

Davidson, a former BBC journalist and Territorial Army officer, has a female life partner was elected to Holyrood in May on the party list for Glasgow. She has attracted the fewest well-known supporters, besides John Lamont, one of the few Tories to win a constituency seat outright in May.

She said she was the only candidate who can present herself as one of a new generation of Tories who could convince Scottish voters to rejoin the party.

Younger voters knew little and cared little about Margaret Thatcher's premiership, a period many Tories concede destroyed the party's reputation in Scotland.

After losing every Westminster seat in 1997, the Scottish Tories have had only one MP for the last three elections. In Scotland it lost two seats at the May Holyrood elections, bringing their numbers down to 15.

"There's not just one but two generations of voters after me who have no knowledge of Margaret Thatcher ... Scotland has moved on. The Scottish Conservative party has moved on," she said.

Support Grows For Keeping 50p Tax Rate

Politicians from Labour and the Liberal Democrats joined forces with trade unions to argue for a retention of the 50p top rate of income tax after 20 leading economists called for it to be scrapped “as soon as possible” in a letter to the FT.










Alistair Darling, the chancellor who introduced the rate in 2009, and Tim Farron, the Lib Dem president, said on Wednesday that lowering the top rate of tax would be unfair while the economy was still in difficulty.

Mr Darling said: “This has got to stay in place until we get out of the crisis. It would be grossly unfair to remove it. In the long run you have got to keep your tax rates internationally competitive which means something like the two rates we used to have. To remove it today would be grossly unfair. If they do not pay their taxes then it is poorer people who are going to pay.”

He was supported by Mr Farron, who said scrapping the 50p rate would be “phenomenally immoral and send an appalling message to the overwhelming majority of hard-working people in this country”.

Ed Balls, Labour shadow chancellor, also weighed in: “If we really are all in this together then the right priority to boost the stalled economy now should be temporarily reversing the VAT rise, which is costing families with children around £450 a year. This temporary tax cut would help to kick-start the recovery and give a much needed boost to millions of people regardless of their income.

“If the chancellor really wants to know how effective the top rate of tax is he should immediately ask the Office for Budget Responsibility, not just HMRC, to produce a report genuinely independent of government.”

Their warnings came after the Trades Union Congress also took issue with the suggestion of an immediate tax cut for top earners.

Brendan Barber, general secretary of the Trades Union Congress called the economists’ opinion “monstrously unfair”, adding: “At a time when cuts are biting hard and ordinary people are suffering the biggest squeeze on their living standards in years, the last thing we need is a handout to the wealthiest in our society.”

But DeAnne Julius, the former member of the Bank of England’s monetary policy committee and one of the signatories of the letter, defended her position to the BBC, saying many hedge funds had already moved to Switzerland and that, if marginal rates were raised on a small number of highly mobile people, “You end up not collecting the tax that you’d hoped to.”

“Only by returning to an internationally competitive tax regime will Britain enjoy long-term sustainable economic growth,” the economists say in their letter.

The signatories include many figures not usually associated with conservative causes, such as Bob Rowthorn of Cambridge University, and two former members of the Bank of England’s policy committee, Ms Julius and Sushil Wadhwani.

George Osborne, chancellor of the exchequer, is already facing pressure from the Tory right and CBI employers’ organisation to scrap the “temporary” top tax rate.

The Treasury believed that the 50p rate, introduced by the former Labour government in April 2010 on annual taxable incomes above £150,000, would eventually raise £2.7bn a year. Combined with restrictions on income tax relief for pension contributions and the abolition of the income tax personal allowance for people with annual incomes above £100,000, last year’s tax increases on the rich were designed to raise £7bn per annum.

The economists dispute these estimates, arguing the 50p rate “punishes” wealth and entrepreneurship. “It is often portrayed as a justified tax on the rich, but the economic damage it causes means that it is against the interests even of ordinary workers who don’t pay it,” they write.

Last month Mr Osborne said “there’s not much point in having taxes that are economically inefficient”. He added that the rate was uncompetitive internationally and targeted wealthy people who were already paying taxes on their capital gains.

Government officials, however, have suggested that the top rate is unlikely to be scrapped until 2013 at the earliest, when a pay freeze affecting millions of public sector workers is due to be lifted.

Nick Clegg, Liberal Democrat leader, will insist the 50p top rate can only be scrapped if other measures, such as a property or “mansion” tax, are introduced to ensure the wealthy pay their “fair share” towards cutting the deficit. The Lib Dems will also insist that the 50p rate’s abolition is accompanied by accelerated moves to raise the annual tax threshold to £10,000.

Other leading economists are more sceptical. Paul Johnson, director of the Institute for Fiscal Studies and not a signatory of the letter, said it was much too early to give up on the 50p rate: “The Treasury has been taking a punt on whether [the 50p rate] will raise money. It is taking a risk, but it is not a stupid punt.”

Scrap 'Reckless And Needless' Public Sector Reforms, Says Ed Miliband

Labour leader tells PM that money spent on elected police chiefs and NHS shakeup could be better spent recruiting frontline staff.



Ed Miliband and David Cameron clash at PMQs.

The prime minister, David Cameron, admitted that stand-alone elections for police commissioners will cost an additional £25m as he faced a barracking from Labour's Ed Miliband over "reckless and needless" public sector reforms.

Cameron faced accusations of "wasting money" which could be better used to recruit thousands of extra police officers, as he sought to defend moves to introduce elected police commissioners.

A plan to bring in elected police chiefs is set to go ahead after Liberal Democrat peers, who had been delaying the Tory initiated policy, accepted safeguards introduced into the legislation.

In a move likely to irritate many on the Conservative benches who feel their party is making too many concessions to Lib Dems and too few to their own side, the legislative delay will mean voting for the new posts will take place in November 2012 instead of at the same time as local elections in May.

The Labour leader told Cameron he was "making a bad policy worse by wasting money" after the prime minister said staging separate elections in November would cost £25m – money Cameron stressed would not come out of police budgets.

As MPs prepared to debate amendments to the health and social care bill on Wednesday afternoon, Miliband also criticised the NHS shakeup and urged the prime minister to "scrap both of these disruptive and dangerous plans".

Miliband told Cameron at the close of a heated exchange: "The truth is, under this government we are seeing two reckless and needless reorganisations of our public services, police numbers down and waiting lists up.

"Under Labour we saw police officers up and waiting lists down. Why don't you do the right thing for the future of our public services and scrap both of these disruptive and dangerous plans?"

Miliband seized on reforms to health and policing as MPs gathered for the first prime minister's questions session since July.

Regarding the cost of delaying the elections for police commissioners, Cameron told Miliband: "It is important to get this policy right and to make sure it works."

Turning the tables on Miliband, Cameron asked him why Labour was "so frightened of elections".

Cameron said the plan involved scrapping police authorities, which would save money, and accused Labour of making a "U-turn".

Labour previously had plans for "directly elected representatives to give local people more control over policing", said Cameron.

Miliband said: "We know what the public up and down this country know: this is the wrong priority for the country. What did we see during the riots? We saw visible, effective policing."

He went on: "The prime minister tells us we cannot afford the current police budget, we have got to cut the number of police officers by 16,000.

"But he tells the country it can afford £100m and more as a result of his decision to waste money on 42 elected politicians earning over £120,000 a year. That could pay for 2,000 extra police officers.

"Isn't the truth that this is the wrong priority at the wrong time for the country?"

As Miliband later moved on to the controversial health reforms, Cameron joked: "I'm not surprised you want to change subjects because on policing you were having your collar felt because you have done a complete U-turn on the policy you used to be committed to."

The Labour leader said the number of people who had to wait more than six months for an operation had gone up by more than 60% since Cameron entered Downing Street.

Cameron insisted the amount of time people were waiting for an outpatient operation had "actually gone down".

"As you know, we have targets for 90% of people to get their treatment within 18 weeks and those targets are being met," he said.

And he insisted the health reforms were now backed by a number of leading professional health groups as well as former Labour health minister and surgeon Lord Darzi – to the dismay of Miliband, who accused him of being "on another planet".

The Labour leader said the British Medical Association, the Royal College of GPs and the Royal College of Midwives "all rejected your bill".

Childcare Costs Mean A Choice Of Debt Or Unemployment For Many Parents

Rather than facilitating work, the huge cost of childcare in the UK is a daunting obstacle – and government cuts worsen the bind.












David Cameron visits a nursery in London. His government's reduction of tax credits has made childcare even more costly for working parents.

I could understand why my bank manager was looking at me like that. It did sound a bit stupid. "You're about to start a job, and that means you need to extend your overdraft?" he said, dubiously. After years of scratching around as a student, I was finally about to draw a wage – but first, I needed to get myself just a bit deeper in debt.

I have two children, so before I could set foot in my office, I needed somewhere to put them, and childcare has to be paid for in advance. That's no minor outlay here in the UK, where we have the highest childcare costs relative to household income of anywhere in the world. A survey by the Daycare Trust and Save the Children explains how much of a barrier and a burden this can be, particularly to families on low incomes. Of the parents questioned, a quarter said that the cost of childcare had caused them to get into debt, but it's the poorest families (those with a household income of less than £12,000 a year) who experience the most crippling effects.

While the better off may have to compromise on swimming lessons or music tuition to cope with higher-than-inflation rises in nursery fees, the more impoverished are often forced to cut back on essentials such as food or heating to make up the difference. And sometimes, ends simply can't be met: a quarter of those in severe poverty said that they had given up work because of childcare costs. A third of them had passed on a job offer for the same reason, and a quarter reported that the expense of childcare had prevented them from taking up education or training.

Rather than facilitating work, childcare becomes a daunting obstacle, keeping parents out of the workplace – and the poorer a family is, the more likely it is to remain in poverty for the lack of money to cover nursery fees. Single-parent families without savings or access to credit are effectively shut out of work.

The government likes to talk about getting people off welfare and into the workplace. "Over the last decade, thousands of people were simply abandoned to a lifetime on benefits, and a staggering 1.84 million children are living in homes where no one works," said employment minister Chris Grayling last week. Rightwing analyses talk about the "lack of work ethic … helping to fuel levels of unemployment".

But it's practical, financial limitations more than nebulous psychological causes that are often keeping parents from becoming employees, and the government's actions so far seem likely to worsen the childcare bind. Working tax credit was sliced in this year's budget, so that it now covers only 70% rather than 80% of childcare costs – a huge difference in the finances of those who need help the most. As the cuts agenda combines with a sneering rhetoric of disdain for the unemployed, this just seems like one more way of keeping the poorest poor, from cradle to grave.

Cameron Rules Out Europe Referendum

David Cameron has insisted Britain must make Europe "work for us" as he again ruled out holding an "in out" referendum.








During Prime Minister's questions he was urged to listen to the calls of Conservative eurosceptics who want a swift vote on the UK's relationship with the EU.

However Mr Cameron, who is meeting president of the European Council Herman Van Rompuy on Wednesday, insisted there is "no case" for a vote.

Mr Cameron said: "I want us to be influential in Europe about the things that matter to our national interest - promoting the single market, pushing forward for growth, making sure we get lower energy prices.

"Those are things we will be fighting for but I don't see the case for an in out referendum on Europe. We are in Europe, we have got to make it work for us."

It comes as a group made up from around 80 new intake Conservative MPs plans to press the Government for significant changes in Britain's role in Europe.

Tory MP George Eustice, one of the group's conveners, insisted the initial aim was for reforms rather than a referendum. He said: "The aim of this new group is to promote debate about creating a new relationship with the EU and reversing the process of EU integration."

The group will work closely with think-tank Open Europe and could eventually expand to take in Labour eurosceptics and possibly some Liberal Democrats.

UK Independence Party leader Nigel Farage said: "The Prime Minster has said today that he didn't see the case for an in/out referendum on Europe. 'We are in Europe', he told us and 'we have got to make it work for us'.

"Well it is obvious that the EU is not working for us, and hasn't worked for us. So then what does Mr Cameron propose? By ruling out a referendum he leaves himself naked in the negotiations. Our EU colleagues must be laughing at his naivety."

Shirley Williams Plunges NHS Reforms Into Fresh Turmoil

Liberal Democrat peer in new battle over health and social care bill, while secret emails fuel privatisation fears for hospitals.












Baroness Williams has raised fresh doubts over the health and social care bill following the publication of secret emails.

The future of the government's health reforms has been plunged into fresh doubt as the Liberal Democrat peer Shirley Williams raises new concerns, and secret emails reveal plans to hand over the running of up to 20 hospitals to overseas companies. The revelations come as MPs prepare to return to Westminster on Tuesday for what promises to be a crucial stage of the flagship health and social care bill.

Baroness Williams, one of the original leaders of a Lib Dem rebellion against health secretary Andrew Lansley's plans – who appeared to have been pacified after changes were made over the summer – said she had new doubts, having re-examined the proposals. "Despite the great efforts made by Nick Clegg and Paul Burstow [the Lib Dem health minister], I still have huge concerns about the bill. The battle is far from over," she said.

Writing in Sunday's Observer, Williams raises a series of issues that she says must be addressed. Chief among them is a legal doubt as to whether the secretary of state will any longer be bound to deliver "a comprehensive health service for the people of England, free at the point of need".

Some critics of Lansley believe the Tories are bent on a mission to privatise the NHS, gradually handing it to the private sector. They fear that moves to end the legal obligation on the secretary of state to deliver comprehensive services may be a deliberate part of the process.

Concerns that ministers want more private involvement will be strengthened by details of email exchanges involving senior health officials about handing the management of 10 to 20 NHS hospitals to international private companies. The emails, which were made public following a freedom of information request and were obtained by non-profit-making investigations company Spinwatch, show that officials have been planning since late last year to bring in international companies. This is despite repeated insistences by both David Cameron and Nick Clegg that there will be no privatisation of the NHS. On 16 May, Cameron said: "Let me make clear: there will be no privatisation." Clegg said: "Yes to reform of the NHS, but no to the privatisation of the NHS."

One of the emails released by the department shows that officials at the private sector firm McKinsey, which advises ministers, were in active discussion about bringing in overseas firms to take over up to 20 hospitals in return for contracts running into hundreds of millions of pounds. An email to Ian Dalton, head of provider development at the Department of Health, who is heavily involved in the reform programme, in November last year talks about "interest in new solution for 10-20 hospitals but starting from a mindset of one at a time with various political constraints".

The emails show that McKinsey is acting as a broker between the department and "international players" that are bidding to run the NHS. The documents even lay out some of the conditions required by "international hospital provider groups" for running NHS hospitals. "International players can do an initiative if 500 million revenue [is] on the table." They also need to have "a free hand on staff management". The NHS would be allowed to "keep real estate and pensions".

The Department of Health attempted to play down the significance of the emails, saying they were referring to what might be done if any one hospital trust asked for the private sector to become involved in running a failing hospital. A spokesman said: "It is not unusual for the Department of Health to hold meetings with external organisations. Any decisions to involve organisations, such as the independent sector or foundation trusts, in running the management of NHS hospitals would be led by the NHS locally and in all cases NHS staff and assets would remain wholly owned by the NHS."

But a spokesman for the public service union Unison said: "Regardless of what Cameron and Clegg say in public, it is clear that behind the scenes the government is planning to privatise the NHS. Private companies will only run hospitals if they see a profit in it. This, together with lifting the cap off the number of private patients NHS hospitals can treat, will completely change the culture of the NHS. It will be profits before patients.

"We demand that the government come clean on their plans. If this is true, patient choice is a complete sham. The move to any qualified provider is clearly about creating a market for private companies. Any MP who votes for the health and social care bill is voting for the end of the NHS."

Williams also raises worries about the extent to which the role of the private sector is being expanded. "I am not against a private element in the NHS, which may bring innovatory ideas and good practice, provided it is within the framework of a public service …" she writes. "But why have they tried to get away from the NHS as a public service, among the most efficient, least expensive and fairest anywhere in the world? Why have they been bewitched by a flawed US system that is unable to provide a universal service and is very expensive indeed?"

She adds: "The remarkable vision of the 1945 Attlee government, of a public service free at the point of need for all the people of England, should not be allowed to die."

John Healey, Labour's shadow health secretary, said: "As David Cameron's government railroads the health bill through parliament, MPs are being denied their constitutional role to properly scrutinise his plans for the NHS. The prime minister has already done a political fix with Nick Clegg on the health bill, and now he's trying to force it through with a procedural fix."