Taxpayers run risk of a £1 trillion burden

http://www.independent.co.uk/news/business/news/taxpayers-run-risk-of-a-1631-trillion-burden-945375.html

The nationalisation of Bradford and Bingley is set to push the combined
burden of public sector debt and exposure to the housing market resting on
the shoulders of the UK taxpayer to almost £1 trillion. At around 65 per
cent of GDP, it will make a mockery of the Government's "sustainable
investment rule", which aims to keep net debt at below 40 per cent of GDP.


Even without the addition of the mortgage books of Northern Rock and
Bradford and Bingley, and the bank of England's extensive loans to the
financial sector, public sector borrowing was set to reach "crisis" levels
not seen since the previous peaks during the last recession, in 1993, and in
the mid-1970s. The impact of lower or non-existent growth on tax revenues as
well as various government "concessions" on the 10p tax band and fuel duty
promises to be considerable.

This level of taxpayer exposure to the fortunes of the housing market is
unprecedented, and will leave the state as the second-largest provider of
home loans, after Halifax Bank of Scotland. Indeed, if the taxpayer ever has
to take on responsibility for that bank's mortgage book the combined public
sector debt and taxpayer exposure figure would rise to about 85 per cent of
GDP, or about £1.2 trillion. That's the sort of figure last seen in the
early 1960s, when the British economy was desperately attempting to escape
from its historic liabilities associated with paying for two world wars and
the building of the welfare state. At that time the sheer size of the
national debt made sterling very vulnerable to currency crises.

More uncomfortably for ministers are suggestions, reported over the weekend,
that some UK bankers are looking to the Treasury to set up a "bad bank",
similar to the Paulson Plan in the United States. This would take on all the
British banks "toxic assets" in the hope that the relief would allow them to
rebuild their balances sheets, resume commercial lending, especially to each
other, and boost the wider economy. Estimates of such a scheme are
invariably guesswork, but in all events would not improve the state of the
public finances.

Meanwhile, the latest survey from the CBI of the financial services sector
reveals that profitability among financial services firms has plummeted to
record lows as the credit crunch continues to bite, according to a survey
released today. The CBI and PricewaterhouseCoopers found that profitability
in the past three months continued to slump, and business volumes sank to
their weakest since the survey started in 1989, and are expected to fall
again in the next quarter. John Cridland, CBI deputy director general, said:
"One year after the credit crunch first took hold, business volumes and
profitability in the financial sector have taken their hardest hammering
yet."



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