Property Sales

The two biggest property groups in the UK are reported by The Times to be selling £750 million worth of retail assets as they attempt to clear up some of their debts.

British Land is said to be selling a 50 per cent stake in Meadowhall, the Sheffield shopping centre, for about £550 million to a joint venture operation comprising Aim-listed London&Stamford and an Abu Dhabi fund.

Land Securities is thought to selling its one third stake in the Bullring shopping centre in Birmingham for £200 million. The buyer is reported by an Australian based fund.

The price of the assets are substantially less than what they would have achieved 18 months ago. London&Stamford is one of several new property funds that is now prowling around the market looking for bargains that it can pick up in the recession.

New Mortgage Deals

There are signs of competition beginning to return to the mortgage market. Woolwich has just launched its cheapest ever fixed-rate mortgage of 2.29%. Applicants need a 40% deposit. It’s fixed for a year.

After that customers are switched to a tracker mortgage for the rest of the loan. The group’s tracker currently charges 2.29% above Bank of England bank rate. It also only applies to people who want mortgages of between £200,000 and £500,000. Where mortgage companies also make their money is in the application fee. Anybody wanting the Woolwich deal must pay a £995 application fee.

Other lenders have launched new offers. HSBC offers a two-year discount deal of 2.99%. Again it needs a 4O% deposit. For people with a 25% deposit NatWest has launched a 3.49% two-year fixed-rate deal. Halifax has a two-year fixed-rate mortage at 2.99% if you have a current account with the company or if you are prepared to switch to it.

Property interest grows

Good news at last on the housing front. The British Bankers’ Association has said the number of people given a new loan to buy a home leaped by 27 per cent in December.

In November there were 17,339 approvals for mortgages. But that figure rose to 22,051 a month later in December.

In many parts of the UK estate agents are beginning to report signs that things might be picking up in property. There are certainly large numbers of buyers out and about encouraged by reports of bargains and the government’s continuing attempts at trying to lessen the mortgage drought.

Cash remains king and for anybody with sufficient funding the market in both residential and commercial property is throwing up attractive opportunities.

But the market is still very fragile and there are no real indicators as yet that the economic storm is beginning to pass.

The widely held view is that although the number of mortgage approvals increased it would be prudent to see it as the market beginning to stabilise rather than suddenly recovering its upward trajectory of the boom years in the past. When the property market was booming mortgage approvals were touching 80,000 a month.

Property is still subject to the tumult sweeping through the rest of the economy. Steel maker Corus is laying off 3500 people. The closure of Barratts the shoe chain which is part of the Stylo group, plus major job cuts at Wolseley, the building materials group and Philips cutting 6000 jobs at its TV plants, all have a knock-on effect on property values.

Virgin Atlantic is making its 9000 workers take a pay freeze to avoid redundancies. British Airways says it will make a £150m loss this year. It pays bills in Euros and US dollars and has major operations in European and US airports. It also has to pay overflying fees paid to countries for using their air space. Sterling touched a new low against the dollar of $1.35 and the Euro is almost at parity with sterling.

Credit Crunch Scandals

Scandals continue to emerge from the Great Crash. John Thain, the former boss of the troubled Merrill Lynch, has apologised for spending £860,000 on fine antiques, carpeting and curtains for the executive offices of the bank. He says he will pay the money back.

Thain has lost his job amid growing acrimony between Merrill and its new owner, the Bank of America. He had insisted it had been necessary to pay $4bn in bonuses to Merrill’s key staff.

The former boss of the collapsed Lehman Brothers bank Dick Fuld has been accused of transferring assets into his wife’s name to avoid claims on his assets by irate Lehman shareholders who are nursing major losses. He received $22m from Lehman in 2007. His accusers say he sold his seaside mansion in Florida to his wife for just $100.

Hard pressed Citigroup – which once boasted that it was the biggest bank in the world before its spectacular fall from grace – has had to publicly defend why it spent between $40 and $50m on a new corporate jet. A spokesman said an order had been placed for the jet with its manufacturer well before the credit crunch occurred.

The Guardian newspaper claims that the New York based billionaire hedge fund manager John Paulson made a £100m profit by betting that the Royal Bank of Scotland’s shares would fall. The revelations add to the growing disquiet about the short selling of bank stocks. RBS has turned in Britain’s biggest corporate loss of £29bn. Its boss has been shamed and the banks was publicly castigated by the prime minister Gordon Brown.

Britains Dangerously Narrow Economy

The recession is carving into every sector of the economy. From luxury goods to
construction, from cars to retail. One of the most worrying aspects is that it is also seriously eroding the high technology industries.

When Britain was undergoing change from a manufacturing economy to a service based economy it was always argued that banking, finance and administration would replace the great industries of yesteryear such as ship building, coal and steel. The other great pit prop for the economy would be the science based industries. High-tech was the all embracing phrase which quickly became a part of the everyday lexicon.

Wise birds such as the late Arnold Weinstock – one of the most important industrialists the UK produced in the post-war era – warned years ago that if Britain’s decline in manufacturing continued at such a pace there would soon be nothing left to service.

In the twilight of his career Weinstock witnessed two tragedies: one personal, the other professional. His son and heir Simon died prematurely. GEC, the electronics and defence colossus that he had built with both ruthlessness and scrupulous care, had virtually collapsed within months of his retirement.

Its new bosses had switched into the high-tech boom and the strategy blew up in their faces. It was an ignominious end for a once proud industrial empire that had been regularly criticised for building a cash mountain instead of investing in high-tech sunshine industries. When it did, under its new proprietorship, it ended in disaster.

For decades – since 1945 – the sirens have been sounding long and hard about the manner in which Britain’s manufacturing sector has been allowed to slip away. The UK is now reeling from the consequences of having most of its eggs in too few baskets.

It needed – and now more than ever – an economy which is more widely based. If one looks at the UK’s historical pre-eminence in manufacturing, a skill base which has been squandered, it should today have more than just banking and high-tech.

Even those two sectors are primarily foreign owned and run. Britain has become little more than a carrier for other nations’ industries. A danger is that if a foreign owned bank wished to up sticks and quit the UK lured by a more conducive climate in some other country, it can do so virtually overnight.

In simple terms you can unplug terminals in London and be plugged back in in New York or Quatar or Frankfurt within hours. You can do it with a car company. But it’s more hassle. It’s difficult and costly to move machinery and to set up new production lines. But given that the UK car industry is entirely foreign owned – nothing is off the agenda.

With banking so bombed out the UK’s dependence on its other ‘pit-prop’industry begins to increase. The news that Microsoft, another iconic name and in its field a world leader, is to shed 5000 jobs will send shivers through those concerned about the narrowness of Britain’s economic base. Over the past few turbulent months there have been a surfeit of warnings from myriad household names in the science and high technology sectors.

Other ‘service’ industries are taking a mighty hit. Hotels, hospitality, restaurants and coffee house chains. These are the frothy businesses which prosper when times are good.

But they are not the great economic drivers that will pull the UK out of recession. The supermarket chains that have caused such devastation on the high street – and the extinction of so many independent outlets – now hold out the promise of new jobs. Good news? Well, yes and no. Yes in that any company which offers jobs when the UK has two million unemployed – three million by the end of 2009 – is to be applauded.

But what sort of jobs will they be? They will be largely unskilled, many of them part-time and they will pay minimum wages. In the future Britain must be more than a nation of shelf-stackers and counter-hands and cleaners and packers – even though each of those is a perfectly honourable and highly necessary job. It is crucial that the UK gets back to encouraging vocational skills, to apprenticeships and to proper training programmes.

Had such a policy been pursued more vigorously Britain could have cashed in recently on the great maritime boom. There are now more luxury private yachts being built than at any time in history. There has also been an explosion in the holiday cruising market. Until the start of the recession India and China were buying just about anything which would float to export their goods. The world also woke up to the need for strong navies with aircraft carriers and nuclear submarines. And who has been building all these craft?

Sadly, and disgracefully, the UK managed to achieve only a fraction of the orders. The bulk of the work was grabbed by yards across Germany, France, Italy, the Netherlands and a hundred other places. It is a shameful record for a nation which was once the world’s greatest maritime power. The UK’s shipbuilding prowess, its mercantile importance as a trading island and the excellence of its navy were all unquestioned.

The UK had, and could have again, the world’s finest pool of highly skilled and motivated shipbuilding workers. It is not chains of dress shops or hotels or coffee bars but major employers in industries that are politically, strategically and economically vital, such as shipbuilding, that could and would help to propel Britain out of recession.

The aim should be to resuscitate the ‘traditional’ manufacturing industries such as cars and motorbikes and shipbuilding and harness them to the ‘new’ and equally vital sectors such as banking and the science industries which have recently taken such a battering.
With a two-pronged economy – vigorous in both its heavy and its lighter industries – Britain would be in a robust position to take full advantage of the upturn. It would also have freed itself from the vulnerability of having its economy built on foundations which are too few and too slender when the winds of recession begin to howl.

Stop Northern Rock bonuses

Northern Rock’s decision to pay £9 million in bonuses to its staff tomorrow has triggered a furious political row. Some MPs are saying publicly – and many privately - that direct control of the bank should now be taken away from its bosses and given to the Treasury.

The bank is already nationalised but control rests with its board. It was bailed out with £30bn of taxpayers money. It has 4,500 employees. The bonus will work out at about £2000 for each employee. When it was nationalised 1500 workers were made redundant.

Bosses will get much larger bonuses. Gary Hoffman, the chief executive recruited from Barclays, was promised a £1.2 million golden hello and a £700,000 base pay package. All bonuses have still to be approved by the remuneration committee of the Board.

The bonuses are because the bank has quickly fulfilled its pledge to repay a quarter of the public money that it had been given to stop it going bust. In fact it has repaid more than half the money.

But in clawing back the money it has been accused of behaving in a grasping way and helping to trigger a mortgage drought. A few days ago it was sternly instructed by the government to start lending rather than withdrawing money.

The cry now is for the Board to brought totally under the thumb of government and its agencies with all its commercial autonomy stripped away.

Its decision to go ahead with bonuses and to pay salaries which people in and out of the Commons find obscene could not have come at a more sensitive time.

The worst slump since 1946 is predicted. Unemployment is likely to be beyond two million – official figures always lag behind reality – and is certain to climb to three million unemployed by the end of 2009.

Banks and bankers have been saved by the taxpayer and have been accused of everything from greediness to ungratefulness, from grabbing the money and then refusing to honour the strings that were attached to it.

Gordon Brown and Alistair Darling are deeply angry with the City. Brown ticked off bankers two days ago. The Royal Bank of Scotland came in for scathing criticism. RBS and its shamed former boss reported the biggest loss in corporate history of £29 bn.

There is growing resentment in Whitehall and the Treasury that the bankers have been given everything they asked for and are now continuing to welsh on the deal. An insider said: “ Brown is an honourable man and feels the bank have spat in his eye.”

Vince Cable, the Liberal Democrat Treasury spokesman, said of Northern Rock’s decision: “ This is bringing the worst of the City bonus culture into a public body .. this is indefensible.” He called on the government to block the Northern Rock payments.

Taxman chases offshore accounts

Tax evaders are beginning to quake in their boots as the Inland Revenue widens its search for anybody who’s trying to get away with it. Last year the taxman collared £400 million by raiding accounts in global tax havens. It’s estimated to be a fraction of the monies which could be raked in. The taxman wants to drag in another £7 billion in unpaid taxes.

Now the Revenue’s powers have been widened. The new aggressiveness is propelled in part by the government’s determination to find money to fill the massive black holes which are beginning to appear across the public finance accounts.

Black holes – large scale deficits - are because of the billions of pounds that have been shelled out from the public purse in the government’s desperate attempts to stave off bankruptcy in the financial sector and the wider economy.

Money which has been squirreled away in Guernsey – a favourite Channel Island tax shelter for UK investors and savers – will now come under the beady eye of the tax inspector. Guernsey has just signed an agreement with Britain which allows inspection of once-closed company and individual accounts.

The Guernsey move comes soon after the Revenue set up a special unit to investigate the richest taxpayers. Four months ago a deal was made with the British Virgin Isles which gives access to accounts by tax men. The Inland Revenue already has an agreement in place with Bermuda and the Isle of Man – two more favourite tax hideaways.

Surveys and opinion polls indicate a growing disquiet in Britain on the part of the electorate about what is perceived as a two-tier society with the poorest half propping up the richest half comprising large numbers of people and companies ‘getting away with it.’

There are still many tax hideaways. Monaco on the Riviera is a favourite for business people, so-called ‘celebrities’ and sports stars. Some companies are registered in relatives’ names and based offshore. The companies and individuals behind them earn millions of pounds in profit in Britain and sometimes employ thousands of people.

But as the crisis has deepened the idea that monies generated by the very rich ‘ trickle ‘ down in a nebulous way through the economy is coming under renewed scrutiny.

And the arguments about the rich giving employment are becoming thin as Britain approaches two million workless with three million predicted by the end of this year.

Concerns that the super rich would up sticks and go elsewhere are looking less convincing. This is a worldwide crisis. A full blown slump is said to be close by many experts. The number of stable and secure options left open to very rich who would wish to flee with their money and perhaps set up business elsewhere are quickly diminishing.

A high level economist who did not want to be named said: “ The amounts of money that could be recouped from the very rich sound breathtaking on an individual basis. However, when set against the national debt they would not make much difference.

“But with widespread hardship in the country it would boost morale for millions of people to know that the wealthy are subject to the national tax laws like everybody else.

“Governments which get out of touch with the people end in tragedy. Terrible events can be triggered if the populace think the rich are getting richer on the backs of the poor who are getting poorer. Look back in history to see the cataclysmic happenings that can spring from high unemployment and a tax system which is perceived to be inequitable. Whether it is or not is immaterial. In times of crisis it’s the perception which can be the catalyst.”

SIR SHED and NATIONALISATION

The revelations that British banks have been favouring foreign companies over British ones has added to the government’s aggravation with bankers. The cries for the entire banking sector to be fully nationalised - and certainly the Royal Bank of Scotland which the government now virtually owns – have become shrill.

The shocking news from RBS – whose shares have fallen from more than £6 each to around 11 pence – and the slamming articles which consumed every British newspaper yesterday about its shamed former boss Sir Fred Goodwin, known as Fred the Shed because of his habit of shedding staff – has brought the City and the banking fraternity into a degree of disrepute that could never have been imagined a few months ago.

The massive failure of RBS – and its entire Board not just Goodwin should hang their heads in shame – has sent shock waves through the financial and political establishment. Its losses of £29bn are the biggest in banking history. They were caused by a disastrous takeover of banking conglomerate ABN Amro just as the crunch kicked off, investment in the poisonous US property market and backing a Russian oligarch. Barclays – not unambitious itself – pulled back from the ABN deal. But Shed & Co. ploughed on.

Yesterday The Times called for the outright nationalisation of RBS. Its collapse has blown a massive hole in Scottish Nationalist plans and their so-called financial strategies. It will be a long time before Edinburgh regains its reputation for financial prudence. A loss of £28bn represents almost a third of Scotland’s entire output.

The Daily Mail accused Shed and RBS managers of ‘ incompetence on a truly gargantuan scale.’ It ran its leader next to an article by its city editor, Alex Brummer, headlined
‘ Hubris, overarching vanity and how one man’s ego brought banking to the brink.’

Shed’s pension pot is £8.4 million. It works out at more than £500,000 a year. Some MPs have demanded that he repay the money and be stripped of his knighthood.

Property prices to rise

A glimmer of good news at last on the property front. Recent figures suggest that prices might be moving up more quickly than most people expect.

It’s because of a combination of factors. There has been an increase in the number of people looking to buy a house. They have been encouraged by mortgage rate cuts and the promise of picking up a bargain as prices slide. And the second factor is that there are so few properties coming on to the market.

Put those two factors together and it’s suggested that house price falls could finish by the end of this year. Demand and supply are coming together more quickly than in previous recessions. It’s argued that the dire shortage of property on the market could result in an increase in average prices over the next few months.

The figures were collated by Rightmove, a property web site.

RESCUE PLAN LATEST: Last throw of the dice

The government’s latest economic intervention announced today is far bigger than had been anticipated. It’s not just the banks that the government is trying to save. It’s the entire British economy. A colossal £200 bn is being pumped in and Gordon Brown says the money is not just about bailing out the banks but is for individuals and businesses and should free up lending and end the mortgage drought.

Brown singled out the Royal Bank of Scotland for specific criticism. It has turned in appalling losses totalling £28bn. The losses are due to a series of catastrophic mistakes. One of the major worries is that other banks still have undeclared toxic assets on their books and when they are finally revealed there will be more shock waves like bolts of lightning hurtling through the economy. The City was still not impressed with the government’s intervention. Bank shares fell sharply.

Much of the blame for the RBS fiasco is being accredited to former boss Sir Fred Goodwin. Goodwin bought the Dutch bank ABN just before the turn down. Today it’s worth a fraction of what he paid. There were other big mistakes. One involved lending £2.5 bn to a Russian billionaire. The money is unlikely to be seen again.

The government has allocated £50bn to help business. But most of it will go to major sectors such as cars and construction. Small and medium sized businesses were less confident that the money would flow towards them. There are going to be complicated policing measures to see who gets what and why. The hugely criticised Financial Services Authority has been effectively sidelined. Needy businesses will have to give the government IOU’s if they want to borrow money. And only rock solid businesses with first class assets will be helped.

Northern Rock Bank has been instructed that it must start lending again. Today’s moves are another massive leap towards total nationalisation of the entire banking system. The Bank of England will have unprecedented powers in being able to direct the affairs of businesses and banks.

Accountants and Lawyers in the frame

Accountants and lawyers are regularly voted the most unpopular people in the City. The prosecution argument runs something like this: while everybody else loses their jobs they still profit from misfortune. They continue to pick up fat fees for liquidations and receiverships and home repossessions and every other type of misery known to man.

But this Big Crash is different. Lawyers and accountants – as well as investment bankers who have achieved pariah status in the wider community – are beginning to feel the pain of recession. Even accountancy big gun KPMG is talking to 1100 of its people about going without pay. The thing that’s gone AWOL for the accountants are the M&As. And what are they? Mergers and Acquisitions. That’s where the real dosh used to be made.

And as for the lawyers all sorts of firms have been swept up in the tsunami in which no sector will be left unscarred. As one would expect from one of the great ‘whispering’ professions everybody is of course trying to put on the bravest of fronts.

The one thing you wouldn’t expect a lawyer to do is admit to meltdown. But every now and again the door creaks open to reveal a dismay which borders on alarm. It used to be if a child went into the law proud parents would say he or she did well. A job for life and safe as houses. Well, we all know what’s happened to houses.

Most of the very big firms will, no doubt, be able to cling on to their assets ( assuming they’re not ‘toxic’) and batten down the hatches and all those other lunatic Churchillian euphemisms which are wheeled out when things get really bad. Having said that, Clifford Chance, the biggest of the biggies, has said it’s losing around eighty lawyers in the UK.

Smaller operations that could be in trouble. They’re the ones who could be stretched in so many different ways. From smart new offices acquired on expensive leases when it looked as if the bubble would go on forever. To those who employed yards of starter solicitors who specialised in such areas as conveyancing.

But it won’t just be apprentices and beginner lawyers. As transactions dry up the partnership money pools shrink. Partners won’t be able to dive into those and come up each year smelling quite as rich as before. So partners and seniors face redundancy too.

No matter how bad it gets lawyers and accountants – like bankers – won’t receive much sympathy. The reasons are at the start of this piece and because of a perception that in the past they have made such huge amounts they should have salted it away for a rainy day.

The one thing a recession guarantees, let alone a slump, is a great wave of schadenfreude: the malicious enjoyment of others’ misfortunes.

Second Government Bail out

The government will tell the banks today and this week that it is extending its bail out monies to approximately £100 million. Some experts are saying that the banking system is effectively bust and is existing on little more than a wing and prayer.

It is possible that there will be a big increase in money being pledged to Northern Rock, the first of the lame duck banks to be bailed out. A figure of an extra £3bn is being reported. It’s likely also that Northern Rock’s function will be redefined. The government is insistent that it will turn it back into an important lender servicing the mortgage market.

The taxpayers stake in the Royal Bank of Scotland will increase too. The government is expected to increase its holding from 58 per cent to 70 per cent.

The high risk double or quits policy being pursued by the government is a desperate attempt to ease the mortgage drought, to inject some confidence into the economy and, crucially, to persuade – or to force – banks to start lending again.

The government is planning to ring fence bad debts, or ‘toxic assets,’ still sitting ominously on bank balance sheets. The word in the City is that some banks still have undeclared poisoned assets. Such worries are still eroding confidence. The government might try to refinance the preference shares which were used in the original bail out of HBOS and RBS. And it will also offer to guarantee a diversity of consumer loans.

Property on the scrounge

The property sector is going to be passing round the begging bowl over the coming months. There are likely to be a glut of rights issues from the big boys in the building and construction industry. It will help to bail them out but it will inevitably mean a dilution of stock which is bad news for existing shareholders.

It will be interesting to see if the sponsors of the rights issues have much success in launching their whip rounds. It’s happened in the past in the building sector but that was filling their coffers to take full advantage of a future boom.

But the market is very different now. The future is black not boom. It’s been estimated that £15 bn of new equity might have to be found to reduce the loan to values ratios to around 40 per cent.

Gloomy forecasts and recent mark downs in land values saw property companies take another mauling on the Stock Exchange yesterday. British Land fell 29 p to 537p and Hammerson shed 36p to 514p. Derwent Land dropped 21p to 778p. Big brokers such as Merrill Lynch will be looking cautiously at sponsoring rights issues.

Take it or leave it

Instead of laying people off it’s now high fashion to tell them to work a shorter week and receive less money. Or if they’re employed by flint hearted employers to work the same number of hours and still take reduced pay. The alternative is for the company to go bust and for everybody to lose their jobs. End of story. So it’s not really much of a choice.

Variations on this type of deal are being offered in different sectors right across the economy. Vehicle maker Vauxhall led the way at its troubled plants in Ellesmere Port in Cheshire and its van making production line in Luton.

Now five hundred workers at Corus steel plant in Newport, south Wales, have been told to stay at home on half pay because there’s no work. There are a thousand workers at the Llanwern plant.

The stay-at-home policy has been agreed with union bosses. Staff who go into work will still get full basic pay but the shift premiums that could shove their wages up by as much as 30 per cent have been axed.

Commercial TV woes continue

There are suggestions in the beleagured TV industry that property shows could fall victim to the Great Crash. Most channels have run them in one guise or another but given the collapse in building they have lost much of their relevance. They are said to be a ‘switch off’ for audiences who are “sick and tired of anything to do with property.”

An insider at C4 said: “ It’s getting difficult to keep revamping the shows. Primarily they were all about telling you how to tart a house up and sell it a profit. There’s no point in doing that now because the market is virtually static. So they’ve tried to turn them into advice shows. But they’re looking a bit thin.

“ The trouble is that the shows have a long lead time. They were in the pipeline before the Crash really started to take a grip. They’re made by independent production companies and commissioners would now like to junk them. They’re expensive to make and the audiences are declining. TV stations are under enormous pressure to get big audiences at the cheapest possible price.

Show such as Property Ladder and Location, Location and Grand Designs are said to be under threat. Advertisers are twitchy because they don’t want their products to associated with a market that’s in the doldrums.

Meanwhile ITV’s instability continues with rumours that boss Michael Grade would like to lead a management buy out. Other hoary old names said to be hovering around ITV include David Elstein who’s been in broadcasting longer than anybody can recall and Greg Dyke who ran the BBC and was the inventor of Roland Rat on Breakfast TV.

With ITV’s shares a disaster there’s the possibility of a foreign conglomerate coming in if they think it’s cheap enough. Big Brother maker Endemol is regularly cited as a possible suitor. ITV has suffered from layoffs, reorganisations, managerial shuffles and a plummeting share price. Such factors have all but wrecked a once proud federal structure.

A source said: “ ITV used to have real TV stations in the regions. But it’s followed a mad policy of badge engineering as in the car industry. You keep the name of the ITV station but they don’t make any programmes or so few of such unimportance that nobody notices. They just act as branch offices feeding stuff from a centralised system. Apart from their six o’clock shows their regional commitment is all but dead and buried.

“ For instance Anglia TV has been decimated. A few years ago Anglia was a serious programme producer making fine network shows such as the award-winning business series Enterprise, The Stocks and Shares Show, Survival, Heartland and various dramas for C4 and the ITV network. It was awash with gongs and was profitable offering a good network and regional service. It employed 800 people. Now it’s down to about 70 people and operates from a converted bowling alley. They’ve just laid off another 35 people.”

C5 has cancelled the Tricia daytime show with 85 people.being made redundant. C5 said it was too expensive. It attracted a small audience compared with the heavily criticised ‘Zoo TV’ Jeremy Kyle show. It was made by a small company called Townhouse with offices in Norwich and Maidstone and accounted for most of its output.

Tax rebates for builders

Battered housebuilders are looking forward to some good news. The Inland Revenue has quickened up its method of getting tax rebates back to building companies. Vast rebates are expected to be paid out to them over the coming weeks and months because of the disastrous losses so many of them have run up as a consequence of the Great Crash.

It’s not just the brake on building that’s hit them. They’ve also been clobbered by having to write down the value of their land reserves. Housebuilder Persimmon had a £150 million rebate last week after writing down its land reserves by more than £600 million.

Builders want the rebates quickly as some are in danger of breaking their banking convenants. It’s been reported Taylor Wimpey – with £1.9 billion worth of debt and engaged in urgent talks with its bankers – hopes to get a rebate of more than £90 million.

The worst building slump in thirty years has brought a number of household names to the edge of the precipice. Share prices have collapsed as projects have dried up. Big names such as Bellway, Barratt, Bovis and Redway are looking for big rebates and want them to be paid swiftly. Two years ago the government raked in a fortune from booming housebuilders. Today government coffers will be light by half a billion pounds in rebates.

Property firm axings

Property consultants Cushman&Wakefield which employs 700 people is reported to be making 80 sales and letting staff redundant in its UK business.

In one of the biggest City culls Merrill Lynch and its new owner, Bank of America, are planning to make almost 2000 people redundant in London.

New waves of redundancies all over the UK come on top of more bad news for Gordon Brown: the Tories have now opened up a double digit lead over Labour.

A poll for The Times shows that the Tories have risen four points to 43 per cent while Labour has dropped two points slipping to 33 per cent. The main reason would appear to be that the electorate is unhappy at the way Brown and Darling have managed the banking crisis and their decision to pump in £50 million of taxpayers money.

On top of the Merrill Lynch axings another 2000 jobs are going in newspaper, retail, food and the haulage industries. They range from 367 jobs at Waterford Wedgwood the china and glass maker to Waterstones the book group who are making 200 people redundant The East Anglian Daily Times newspaper at Ipswich part of the Archant group has axed 25 editorial people. Wincanton, the logistics company, is cutting 1000 jobs in Manchester and Gloucester. Digger maker JCB has cut 700 jobs because of the building and construction slump and because those customers it has cannot get credit facilities.

More redundancies are expected at Land of Leather. It collapsed on Monday jeopardising over 1000 jobs. It has 109 stores. Last year the High Street was rocked by The Pier, Rosebys, ScS and MFI all going under. More major High Street failures are inevitable.

Lord Mandelson the government business boss will announce that the government will underwrite loans of up to £1 million to little and medium sized companies. Darling has promised £1 bn would be spent on the scheme with another £1bn being pumped in to help small exporters. The moves are part of a package of measures to get banks lending again.

Unemployment in the UK is running at 1.86 million people and the figure is rising daily. A figure of 3million unemployed is being forecast by the end of 2009.

FSA Luxury in Edinburgh

The Financial Services Authority is in serious danger of becoming a laughing stock. That’s assuming it isn’t one already. After unprecedented criticism at its lack of governance over the past months it’s now organising another swan this coming Thursday.

It’s holding a seminar at the posh Balmoral hotel in Edinburgh which is one of the most luxurious five-star establishments anywhere north of Watford.

The seminar’s about the changes in the way retail investment products are sold. If you really want to go it’ll cost you £172.50. It’s half that if you’re from a little company. How thoughtful of the FSA to remember the little man who has been so harmed by the Crash which he foolishly thought the FSA might have warned him about.

No doubt hard-pressed small company businessmen will have better things to spend their money on. A more appropriate setting for the seminar in these difficult times would have been a cave warmed by a peat fire stuck out somewhere on the Scottish moors.

Seminars, conventions, corporate hospitality days at Newmarket and Henley and Wimbledon, executives climbing rock faces and fording rivers in bonding sessions, and all the other diverse knees-ups which were so popular in boom times are tipped to take an enormous clout as the recession deepens. There have been a few casualties. Expect more.

Incidentally, what happened to Red Letter Days? It was a little company founded by a woman member of the Dragons Den team on TV. It used to put people in racing cars for a birthday treat or send bored bosses up in balloons. But then it ran into problems and was bought out by two other Dragons, Peter somebody or other and the bloke with a Greek sounding name who runs knicker shops. The woman disappeared from the show.

So did the Dragons save Red Letter? Or did it go bust? What happened to the woman who founded it? We have a right to know.

What now for mortgages

Millions of mortgage holders are now back in what has become familiar territory over the past few months. It’s called The Land of Wait and See. Wait to see if your mortgage is going to be cut. Wait to see if you’re among the lucky ones whose lenders will
pass on the cuts either in part or – if you’re very fortunate – in full.

Theoretically the lucky ones who see a drop in their mortgage payments will have a little more money to spend. This will benefit the economy. And pigs will fly.

In reality if the average mortgage holder is a few quid better off if he’s got half a brain he’ll hang on to it rather than going out and buying stuff he doesn’t need.

He’s going to be worried about unemployment, about mortgage rates shooting up again, about the children’s school fees, about repayments on the car, or the roof blowing off, about something dreadful happening that he can’t quite put his finger on.

He might not be able to describe what horror it is but he thinks that some dreadful scenario is just around the corner and he wants to be ready for it with a little nest egg.

He won’t put in a bank because the interest rates have become a very bad joke for savers. So he’ll probably put it under the mattress.

Even if he finds a bank that paid a decent rate of interest to savers – which he won’t –but let’s just suppose for a moment – he’d still prefer to have it under the bed because he thinks that’s safer than sticking it in a bank.

Nobody, today, trusts banks or bankers. It’s as simple as that. And that reaction, which is understandable after recent events, contributes to a damaging lack of confidence which has permeated the economy from top to bottom.

There’s very little evidence that cutting a measly half point off the interest rates will do much to revive the economy. Revive is probably the wrong word. Resuscitation is more appropriate.

The shrinking economy appears to have hardly responded to rates being slashed from 4.5 per cent to 2 per cent in the last eight weeks. So what difference will a half point make?

A half point drop is likely to have the same effect as chopping VAT by 2.5 per cent, which, for anybody who cares to remember, was also part of the emergency resuscitation package. And what has been the effect of pruning VAT? Very little.

The problem remains two-fold: a lack of credit and a lack of confidence. Out of those the lack of credit – of lending – is probably the most important. If that could be sorted then confidence would begin to seep back to both consumers and the business fraternity.

Businesses desperately need to borrow money to keep going. House buyers need to borrow money to buy houses. But the banks are saying that they too have a big credit problem. And even a half point cut will again worsen the position for savers.

One wonders why rates were not cut more drastically. Perhaps it’s because the Bank of England feels that it will soon have nothing left to offer. After all, if and when rates get down to zero – and still the patient refuses to be resuscitated – what happens then? What else can Brown and Darling chuck in to kick the old girl into life?

There’s no easy to answer. One effect of dropping rates has been a big dip in sterling which is now close to parity with the Euro. Don’t let’s even talk about the dollar. A sliding pound is good news for UK exporters. But if sterling started to really dive all Hell could break loose.

There’s only really one answer. And as any economist will tell you .. it doesn’t come with a guarantee. And what is it? To pump in yet more money. On the other side of the pond Obama is talking colossal amounts of money being injected into the US economy. Something like 6 per cent of the entire economic output.

The UK has so far put in about two per cent of the UK economic output. That’s hefty. But not enough. So the government faces another cleft stick. It’s damned if it does. And damned if it doesn’t.

It’s already pumped in £50 billion of taxpayers money. And it doesn’t seem to have had much of an effect. So it can walk away and say it’s not working and, effectively, write it off. Or it can say in for a penny in for a pound. Or in £50bn in for £100 bn. It’s like the gambler who says it’ll all work out if he has just one more bet.

There are other instruments which could be brought into play. The state sector is still out of control. Public spending could be slashed. The number of non-jobs in the state sector could be cut. Gold plated pensions for state employees must be stopped. Bodies like the Health and Safety executive and myriad quangos could be chopped.

The abolition of HIPS – which if you ask any property professional is a fiasco and has acted as a severe break on property – should happen now without further dithering.

And it’s not just the state sector. If reports continue about bonuses and astonishing perks sill being paid to people in the financial sector – especially to bankers who now face such approbrium – then the government will come under real pressure from an electorate, from the tax payer, fed up to the back teeth which what is perceived as a two-tier society in which the poorer half has to bail out and prop up the richer half.

Income tax could be cut – national insurance must be closely monitored – and there could be merit in the notion of the government guaranteeing bank lending. Insufficient has been done to help first time buyers. And with the looming accommodation problem the government must do more to encourage buy to let landlords. The collapse in the building and construction sector and the way housing targets have been missed means that the health of the rental sector is crucial.

The cry is now loud that the type of half-nationalisation of the banking sector that has taken place so far is too prissy - and that total state control should be effected if that is the only way of getting the lenders to begin lending again.

A Marxist style takeover of banks and lending houses would include the seizure of assets and the abolition of the boards and private shareholders with no compensation.

If one could remove profits and the dividends – and if one could inculcate the financial sector with the idea that the national interest is of a greater importance than the well being of shareholders and the board – then such an idea would have populist appeal.

One would have to have highly competent people running a state-run banking system. It would not have to be allowed to fall into the hands of politicos and committees and some of the brain-dead dolts who held high office in nationalised industries in the past.

But it is so radical a step, somehow so un-British, that it would be a final option and a strategy about which there would have to be considerable caution. The reputation of the banking and financial institutions, however, has been so damaged and is now at such a low ebb that the government might feel this is the time to take such action.

Brown’s administration is, after all, supposedly a Labour government and such thinking would chime well with many of its traditional stalwarts and, perhaps, to s wider electorate disenchanted with the caprice and volatility of the enterprise economy. Milton Friedman-Margaret Thatcher free market economics have been shown to be dangerously flawed.

This is another unexpected effect of the Crash. Revolutionary ideas – once restricted to the ultra Left – are now part of mainstream thinking. It demonstrates how the world has changed. Who would have thought that less than a year ago that a Bush administration would have bailed out its economy – or that Britain’s bankers and lenders would be subject to such levels of government intervention? Can 2009 hold anymore shocks than those which were produced by the financial tsunami of 2008?

Mixed views over interest rate cuts

Interest rates have been slashed down a further 0.5%, now resting at 1.5%. The rate becomes the lowest ever set by the BOE in its 315 year history. The Bank of England has now reduced interest rates four times from Octobers original 5% level.

Customers with mortgages linked to tracker deals will automatically have the cut in interest rates passed on to them by their lender. This is definitely good news for anyone with a mortgage but for savers it is a nightmare.

How the interest rates could affect your mortgage –
People with an average repayment mortgage of £150,000 will see their monthly payment fall by roughly £46.00
Those with a tracker deal on a £250,000 mortgage will save roughly £76.00 per month.
But anyone with a standard rate variable mortgage will have to wait to see if their lender will pass on the rate cuts.

Skipton Building Society, HSBC, HBOS, Lloyds TSB and Nationwide have said they will pass on some or maybe all of the reduction, but have not quoted figures yet. All other lenders have yet to decide what will be passed onto to home owners.

Rates expected to hit all time low

The Bank of England is expected to slash interest rates to their lowest level in the banks history when it makes its monthly decision.

Interest rates are currently at 2%, the committee is expected to announce the new reduction of between 0.5% and 1% later today.
While a rate cut is widely expected, there is debate as to how far the Bank will actually go.
Six months ago, the BOE was juggling slowing economic growth with soaring inflation, now it must walk a thin line between deflation and the growing threat of weakening England’s currency further.
Deflation – where prices fall rather than rise – becomes a far larger risk if interest rates continue to fall towards zero.
But the UK's biggest lender, HBOS, is passing on only 0.25 of a percentage point.
C&G, Bristol & West, Lloyds TSB and HSBC have apparently agreed to pass on the last 1% point cut in full to all of their customers with variable rate mortgages.

But England’s largest lender, HBOS, is only passing on 0.25% point cut to its customers.

How many more banks will follow another interest rate cut? Can they afford to do so?