Tag Archives: lend

Labour would halt RBS privatisation – in return for investment

 

This looks like Labour’s plan for a national investment bank, writ smaller.

A Labour government would halt privatisation because it would not profit the state. This makes perfect sense – far more than the current Tory plan to sell to the rich at a loss for the poor.

But the offer is only to delay continued privatisation of RBS – and only if the bank commits itself to lending money to the regions, and to small businesses.

For This Writer, it is not enough. RBS played a large part in the financial crisis of 2008 and it would be fitting if that bank were kept in public ownership and made to put right the damage it caused.

Put the Tories in Labour’s place, with a similar kind of offer, and I’d be calling them liars. History shows that Conservatives will say what they think others want to hear, to get them on-side. Then they renege on the deal.

I wouldn’t mind at all if Labour reneged on this one and turned RBS into a part of – or the basis of – the National Investment Bank in the party’s manifesto.

But Labour is not the Conservative Party and I have a feeling this is a sincere offer. But will the RBS bankers – and their shareholders – share my belief?

[The] Labour party would halt the privatisation of Royal Bank of Scotland (RBS) if it came to power but would not seek to exert day-to-day control, the opposition party’s shadow banking minister told Reuters.

RBS shareholders voted on Wednesday to approve the bank’s plans to begin buying back its shares from the government in order to accelerate a return to majority private ownership, with more than 98 percent backing the proposal.

RBS remains 62 percent owned by British taxpayers after a £45 billion bailout in the 2008 financial crisis, although the Conservative government has conducted two share sales as it looks to return it to private ownership.

The government’s two RBS equity sales so far have crystallised deep losses for British taxpayers on shares that have almost halved in value since the bank’s rescue.

“If RBS is now paying dividends, and the price of the shares is under what was paid, we cannot see the rationale for selling more shares,” said Labour’s Jonathan Reynolds.

Having previously suggested full nationalization of RBS, Labour has been rowing back as it seeks to build bridges to the City of London and ease concerns about a Labour-led Britain.

The extent of state involvement would depend on RBS’ willingness to increase lending to Britain’s regions and small businesses.

“We don’t have a policy of day-to-day control of RBS,” he said. “But there is clearly unmet demand in lending and a problem with financial inclusion.”

Source: Britain’s Labour says it would halt RBS privatization


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Tory twit(terer) undermines seven years of government economic policy – in ONE TWEET

Philip Hammond, by cartoonist Dave Brown: Mr Hammond’s policies are more likely to strangle the UK’s public services than the Chancellor himself.

It takes a special kind of genius to (metaphorically) shoot your own mouth off and shoot every Tory MP of the last seven years in the foot – at the same time.

That is the achievement of a Twitter user who, with stunning insight, calls him- or herself “Voice of Reason”.

This person clearly set out to undermine Labour’s answer to this week’s Budget statement, which Conservatives have tried to reduce to a claim that John McDonnell would borrow so much money, he would bankrupt the country.

That is impossible in a sovereign country, and there’s a huge difference between borrowing money, spending it, and having nothing to show for it – as the Conservatives have been doing – and borrowing in order to invest in business and receive a financial reward in return.

These facts seem to have bypassed “Voice of Reason”, who transmitted the following to the world:

Let’s just nail the fundamental flaw in the argument right now: John McDonnell and Labour have never claimed they won’t need to pay back any money they borrow – they want to invest such cash in money-making enterprises that will make a profit for the country. That doesn’t mean the premise of John McDonnell borrowing money for a house is false, as the Tories’ own policies have offered ways to make that work, too – as we shall see, now.

I don’t know whether the people who responded to this ill-advised outburst were Labour supporters or economists, or Labour-supporting economists, but they dealt out a lesson that everyone should remember. Let’s consider their responses:

With apologies to those who are easily offended by harsh language, that really is how this works. Labour is proposing business loans that are intended to produce a return on the investment – making more money than the initial outlay, which is exactly the same as any other business loan.

For ways to make money after buying a house, try this:

https://twitter.com/mikey_rains/status/934051173107163136

Alternatively, Jude (@faybijou) wrote:

“Or:
“Borrower: I’ll leave it empty. House prices will rise because there aren’t enough to go round. And then eventually sell it at an inflated price and hide the profit in Paradise.”

Here’s a response that shows up Tory police for what it is:

https://twitter.com/JohnHare17/status/934042437458198528

Other commenters didn’t bother copying the style of the original tweet to point out its uselessness, but went straight for an explanation of the substantive issues:

https://twitter.com/Rugbymumno9/status/934039376090357761

The response to this showed up “Voice of Reason” even more:

https://twitter.com/Rugbymumno9/status/934077593422352384

Yes indeed – where is our money? Panama?

Moving on, try this:

This exchange is quite funny:

In fact the UK government never has any problem finding people who will lend money. The process was explained on the BBC’s Daily Politics this week: The Bank of England issues debt securities called “gilts” in one of two forms. A conventional gilt is a bond issued by the UK government which pays the holder a fixed cash payment (or coupon) every six months until maturity, at which point the holder receives his final coupon payment and the return of the principal; index-linked gilts pay coupons which are initially set in line with market interest rates.

Government bonds are usually in the currency of the country of origin, in which case the government cannot be forced to default.

The terms on which a government can sell bonds depend on how creditworthy the market considers it to be. International credit rating agencies will provide ratings for the bonds, but market participants will make up their own minds about this.

Not only does the UK have its own sovereign currency, meaning it cannot be forced to default on its debts, but market participants have chosen to ignore several downgrades by credit rating agencies since the Conservative took office in 2010.

This means UK gilts are considered extremely safe forms of investment. About two-thirds of UK gilts are held by insurance companies and pension funds. The UK has absolutely no problem finding lenders.

The claim that Labour has only ever spent money without making any return is risible. History shows that Labour is the party with a record of paying off the national debt; Tories merely increase it. Recent history shows that the Tories have borrowed more than every UK Labour government there has ever been.

https://twitter.com/GreatRedDragon0/status/934043176503074817

This last response nails “Voice of Reason”‘s problem in a nutshell:

Correct.

It is indeed economically illiterate to claim that anyone borrowing money to invest it in profitable enterprises, then using the profit to pay off the debt with interest, and still having cash left over, is a “nutcase”.

It is also economically illiterate to claim that the national debt will be paid off by borrowing money and then slashing economic growth, as the Tories have claimed for the past seven years.

So their economic policy can’t be about paying off the national debt.

In fact, Tory economic policy is about ensuring that the state cannot fund public services and must therefore sell off publicly-owned assets, forcing citizens to pay for services themselves – a far more expensive form of provision which therefore makes a large profit for any privately-owned provider of those services.

It is also about ensuring that the majority of citizens simply don’t have the funds to pay for those services privately, putting them at a permanent disadvantage in comparison to the rich asset- and shareholders.

That is why the Conservative-led governments of the past seven years have offered huge tax cuts to the richest people in the UK, when that money could have been used to help pay off the deficit and debt; and austerity to the poorest, cutting public services and business investments that could have brought in revenue for the state.

The policy means tax revenues are never enough to cover the cost of public services, providing the Tories with an excuse to go on cutting them until there are none left.

According to the Office for Budget Responsibility (OBR), we will reach that point in 2031. The Tories themselves are hoping to manage it in 2025.

Those are the dates at which these two organisations reckon the deficit will go into surplus, and that’s why we may conclude that it is the date by which all public services the Tories want to sell into private hands will have gone.

And this is the only explanation of Conservative policy on taxation and borrowing that makes any sense at all.


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Great Coalition failures: Banking

zcoalitionbanking

Everybody seems to have had fun with yesterday’s analysis of the Coalition Agreement and its provisions on ‘Jobs and Welfare’ – so let’s have a look at another part of it:

1. BANKING

The banking crisis, coupled with incessant propaganda from the Conservative Party and the right-wing press, brought down the Labour government in the 2010 general election. The incoming Coalition government promised reform – but did it deliver?

In recent years, we have seen a massive financial meltdown due to over-lending, over-borrowing and poor regulation [Conservatives were lobbying for less regulation, right until the crash happened]. The Government believes that the current system of financial regulation is fundamentally flawed and needs to be replaced with a framework that promotes responsible and sustainable banking, where regulators have greater powers to curb unsustainable lending practices and we take action to promote more competition in the banking sector. In addition, we recognise that much more needs to be done to protect taxpayers from financial malpractice and to help the public manage their own debts.

  • We will reform the banking system to avoid a repeat of the financial crisis, to promote a competitive economy, to sustain the recovery and to protect and sustain jobs [flannel – but it is just an introduction; setting out the stall, if you like].
  • We will introduce a banking levy and seek a detailed agreement on implementation [The levy, as eventually imposed, was effectively a tax break for the banks, whose share prices actually rose when it was announced].
  • We will bring forward detailed proposals for robust action to tackle unacceptable bonuses in the financial services sector; in developing these proposals, we will ensure they are effective in reducing risk [The Coalition’s bank levy was devised to raise no more than £2.5 billion per year, while bonuses for the year of its introduction were believed to total around £7 billion. No effective effort has been made to curb excessive bonus payments in banks].
  • We want the banking system to serve business, not the other way round. We will bring forward detailed proposals to foster diversity in financial services [diversity has fallen off], promote mutuals [these plans were criticised as having ‘no legs’] and create a more competitive banking industry [no sign of this yet].
  • We will develop effective proposals to ensure the flow of credit to viable SMEs [by the end of 2013, more than 70 per cent of small business owners said they believed the government had produced little or no effect in this regard]. This will include consideration of both a major loan guarantee scheme and the use of net lending targets for the nationalised banks.
  • We will take steps to reduce systemic risk in the banking system and will establish an independent commission to investigate the complex issue of separating retail and investment banking in a sustainable way; while recognising that this will take time to get right, the commission will be given an initial time frame of one year to report [current situation: banks have until January 2015 – nearly the end of the Coalition’s term in government – to detail how they propose to manage this separation].
  • We will reform the regulatory system to avoid a repeat of the financial crisis. We will bring forward proposals to give the Bank of England control of macro-prudential regulation and oversight of micro-prudential regulation [some reform appears to have taken place but have not yet been tested].
  • We rule out joining or preparing to join the European Single Currency for the duration of this agreement.
  • We will work with the Bank of England to investigate how the process of including housing costs in the CPI measure of inflation can be accelerated [this has not happened].
  • We will create Britain’s first free national financial advice service, which will be funded in full from a new social responsibility levy on the financial services sector.
  • We take white collar crime as seriously as other crime, so we will create a single agency to take on the work of tackling serious economic crime that is currently done by, among others, the Serious Fraud Office, Financial Services Authority and Office of Fair Trading [plans for this agency will not be published until the end of 2014 at the earliest].

Conclusion: Where the Coalition has made decisions, they have been weak, meaning banks have enjoyed business as usual for the last four+ years instead of enduring the promised crackdown. Many measures – like the separation of retail and investment banking that we were told was absolutely vital to protect our savings – have not happened at all.

Follow me on Twitter: @MidWalesMike

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