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ALEX BRUMMER: Enter the age of penury

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alex brummer enter the age of penury

Ten days ago Rishi Sunak made his bow towards past Tory values by reminding the nation it was his duty to balance the books.

That was before he unveiled a new series of bailouts, including a 65 per cent wage subsidy for workers on furlough in the highest tier Covid neighbourhoods.

Reality is that even if the Chancellor were to destroy Conservative prospects for ever with hefty tax increases, there is as much prospect of restoring order to the exchequer any time soon as sending an astronaut to Mars.

Paying out: Chancellor Rishi Sunak Rishi Sunak has unveiled a new series of bailouts including a 65 per cent wage subsidy for workers on furlough in the highest tier Covid neighbourhoods

Paying out: Chancellor Rishi Sunak Rishi Sunak has unveiled a new series of bailouts including a 65 per cent wage subsidy for workers on furlough in the highest tier Covid neighbourhoods

The pummelling of public finances across the earth is spelled out in full technicolour in the IMF’s fiscal monitor.

As a consequence of Covid, public debt has risen 30 per cent since the peak reached in the financial crisis. 

That represents 83 per cent of 2019 output, a proportion that is bound to rise once we know this year’s reduced GDP figure. 

Throw in private sector borrowings and the world is sitting on a debt iceberg of 225 per cent of GDP.

In the UK, all that tough stuff done by George Osborne in the Coalition years (destroying the Lib Dems in the process) has been wiped away as if it never happened. 

The IMF’s medium range forecast shows the UK’s debt-to-gross-domestic-product ratio surging to 108 per cent this year and rising in every year until it reaches 117 per cent of output in 2025.

If it is any comfort, this is a little better than most of the EU with France, Italy and Spain looking worse. Fiscal and monetary purity in Germany mean that debt will peak at 73 per cent of GDP this year before falling back to 59.9 per cent by 2025. 

Britain is a mere amateur when it comes to running up permanent debts compared with the US at 136.9 per cent of GDP in 2025 and Japan at a stonking 264 per cent of GDP.

How is this possible? The US has the exceptional advantage of being the world’s main reserve currency. Nations around the world, including China, have little choice but to hold dollar assets in their reserves. 

In Japan savers would rather hold government securities than any other asset class, so Tokyo doesn’t worry too much.

Britain’s claim to fame is that unlike almost every other nation (including Germany) it has never reneged on its debt, even if it sometimes takes a long time to pay it off. War loans dating back to the Second World War were not fully redeemed until 2006! 

The guiding principle for the Treasury is to demonstrate to global investors that there is a plan for bringing down annual borrowing and the debt pile over time. 

That will almost certainly mean higher taxes eventually. There is no requirement that the wealthy be targeted as the IMF recommends.

As former Bank of England governor Mark Carney pointed out when worrying about Brexit, the UK is dependent on the kindness of strangers buying UK assets.

That requires at least the semblance of a plan to put things right as growth returns. Borrowing and debt are less worrying at present because interest rates are low or in negative territory.

But those of us who grew up with the high inflation and jaw dropping interest rates of the 1970s and 1980s cannot but be nervous that the central bank money printing binge eventually could end in tears.

Digital winners

The pandemic has been manna from heaven for online traders Just Eat Takeaway and fast fashion group Asos. It has helped validate their business models and the cash is rolling in.

Profits at Asos were four times higher at £142million in the year ending August 31, and it has avoided the factory pitfalls of Boohoo, although the GMB union is cavilling about working conditions in the warehouses. 

Just Eat Takeaway took in 46 per cent more orders in the third quarter than a year earlier.

A potential hazard on the horizon as furlough in the UK and other major markets is withdrawn is higher unemployment and less spending power. 

Nevertheless, you can almost hear the spending power being sucked out of the High Street. Pity.

Cold blast

Problems for Garda World, the stalker seeking to seize control of G4S in a hostile deal. 

The battered UK security behemoth is actually managing to ramp up profits on lower revenues and the order book is chunking up.

A G4S share price, which has zipped up to 209p, way above the 190p offer, leaves Garda World out in artic without a Canada Goose jacket.

This post first appeared on dailymail.co.uk

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Sunak’s bailout package sends budget deficit towards £400bn 

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sunaks bailout package sends budget deficit towards 400bn

Rishi Sunak’s latest bailout package for businesses could push Britain’s annual budget deficit above £400billion, experts warned last night.

Business leaders hailed the generosity of the compensation package, which will support struggling firms hit by Tier Two restrictions.

The Chancellor unveiled changes to the Job Support Scheme, which replaces the Job Retention Scheme when it closes on October 31. 

Handouts: Chancellor Rishi Sunak has unveiled changes to the Job Support Scheme, which replaces the Job Retention Scheme when it closes on October 31

Handouts: Chancellor Rishi Sunak has unveiled changes to the Job Support Scheme, which replaces the Job Retention Scheme when it closes on October 31

Under the revised scheme, employers will have to pay a smaller portion of wages of furloughed staff who have returned to work part time. 

Staff will also have to work fewer hours to qualify for support. At the same time, taxpayer subsidies have doubled – with the Government funding 62 per cent of the hours not worked.

And the Chancellor said the Treasury would provide grants for struggling companies in areas under Tier Two restrictions. 

They will be worth up to £2,100 each month and will focus on companies in the hospitality, accommodation and leisure sectors. 

The Treasury refused to provide any guidance on how much the new lifelines will cost. A Whitehall source said it depended on take-up of the scheme.

But it is thought the extra support could cost more than £22billion in total over six months. 

This includes roughly £1billion a month for every 2m people signed up for the scheme. 

The Treasury has previously indicated that between 2m and 5m will be supported by the wage subsidies. 

This suggests it could cost up to £15billion over six months. 

The bailout could push the annual deficit above £400billion, according to Capital Economics, which had predicted government borrowing was already on course to hit £390million even before the latest compensation package was announced.

Paul Dales, its chief UK economist, said: ‘The combination of the darkening of the economic outlook due to the latest Covid-19 restrictions and the Chancellor’s more generous Job Support Scheme mean there is every chance the budget deficit will top £400billion this year.’

This post first appeared on dailymail.co.uk

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Nationwide to issue credit cards made from recycled plastic

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nationwide to issue credit cards made from recycled plastic

Nationwide is to issue debit and credit cards made from recycled plastic, in a move it estimates will save 35 tonnes of carbon emissions a year.

The building society, which issues 5.4m cards annually, said it is the first major UK bank or building society to take such a step.

Nationwide, which is the UK’s largest building society, has pledged to eliminate single-use plastics by 2025.

Eco-friendly: Nationwide said it is the first major UK bank or building society to issue cards made from recycled plastic

Eco-friendly: Nationwide said it is the first major UK bank or building society to issue cards made from recycled plastic

The cards made from recycled PVC materials will be rolled out from next spring.

They will be issued to current account members first, before being rolled out across Nationwide’s product range. The society said the move is part of a wide focus on sustainability.

Claire Tracey, chief strategy and sustainability officer at Nationwide, said: ‘Our members tell us that, despite the tough times right now, they still want to make the world a greener place.

‘We’ve also set aside £1billion for our members to borrow at a special low interest rate if they want to make their homes greener.’

This post first appeared on dailymail.co.uk

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Airbnb hires Sir Jony Ive for redesign ahead of a £23bn float

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airbnb hires sir jony ive for redesign ahead of a 23bn float

Airbnb has hired famed former Apple designer Sir Jony Ive to lead a redesign of the company ahead of a £23billion float later this year.

The home rental site has hired Ive’s company, LoveFrom, to revamp its app and website, as well as create new products in a ‘special collaboration’ that will last for several years.

Ive, who is British and was knighted in 2012, was lauded for overseeing the creation of the iPhone. 

Airbnb has hired Sir Jony Ive's company, LoveFrom, to revamp its app and website, as well as create new products in a 'special collaboration' that will last for several years

Airbnb has hired Sir Jony Ive’s company, LoveFrom, to revamp its app and website, as well as create new products in a ‘special collaboration’ that will last for several years

The 53-year-old was a close colleague of Apple founder Steve Jobs and was head of the company’s design from the 1990s until June 2019, and Apple is one of LoveFrom’s major clients.

Airbnb has rebounded from the Covid pandemic, which at its peak wiped out 80 per cent of its bookings. 

It cut a quarter of its workforce, raised £1.5billion of debt and cancelled all marketing in a bid to stay afloat.

Since June, analysts believe bookings in some areas have surpassed 2019 levels.

This post first appeared on dailymail.co.uk

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