Mortgage rationing is set to become more of a problem in 2009 if the government don’t intervene, according to a lending group.

Director General of the Council of Mortgage Lenders (CML), Michael Coogan, has said there are now fewer lenders with less money. He also suggested that if lending levels in 2009 go in a similar way to 2008, they could be a challenge. And added that smaller companies may have to spend a third of their profits covering the bail-out of bigger banks.

Mr Coogan was speaking at the CML’s annual conference on Tuesday and painted a rather dull picture for people intending to get onto the property ladder in the near future. He said that: “Consumer borrowing will simply not return to the levels seen in 2007, even if funds increased and a wide variety of lenders were to become active in the mortgage market again.

“In fact, unless the government takes further targeted action to help market participants, we will see a worsening of the picture next year compared to this.

A good outcome next year in my view would be if we had lending at levels seen in 2008, but bearing in mind we will be in a recession…this would be a real challenge.”

Sir James Crosby also voiced similar views earlier this year, when in a recent report to the chancellor, he suggested that net new mortgage lending would pads the low of £15 billion in 1995 and fall below zero.

House prices in Britain have fallen by 10% to 15% this year so far. Mortgage approval is also down 74% compared to last year, and it is expected that there will be further falls in prices.

Mr Coogan also claimed that building societies would make a loss this year. Other small financial businesses are seeing their profits hindered by “unintended consequences” of moves to protect customers with failed banks.

Though the government may have made changes in order to avoid tax-payers having to cover compensation paid on those who have lost money with Icelandic banks, in actual fact, it will be financial institutions of all sizes that have to cover the cost via the annual financial services compensation scheme. This has cost some of the smaller institutions up to 30% of their annual profits.

Mr Coogan has however backed the mortgage lenders decision to delay the process of repossessions for borrowers in financial troubles. But he has also asked for more support from the government. He has proposed a “backstop scheme” in order to sell property to their lender which they could rent back. This would stop the need to go to court, as well as underpinning property prices, and allow people to stay in their own homes, therefore supporting the local community.

Prior to Thursday’s decision on interest rates, he also criticised the idea as “short-sighted and counterproductive”, claiming that this was pushing down interest rates offered to savers.

Jon Pain of the Financial Services Authority has warned lenders to keep to contractual rules when passing on cuts to customers, saying that any floor on tracker mortgages must be made clear in an initial mortgage contract.

At the same conference, Liberal Democrat Treasury spokesman, Vince Cable also said that there should be no return on reckless mortgage lending, claiming that: “the industry should now be exploring new products to restore faith in mortgage lending.”

57.9% of the Royal Bank of Scotland will soon be owned by the government, as shareholders have only bought out a tiny amount of the new shares that were offered to them.

The small take-up had been predicted, and is likely due to the fact that the offer price of shares was 65.5p – 10p higher than the price at which shares were trading.

The Royal Bank of Scotland also owns NatWest, and the share issue was part of the government’s plan to recapitalise banks.

The government will now pay around £15 billion for its share in the bank, and will also buy £5 billion of preference shares.

Existing shareholders at the bank bought almost 56 million shares, representative of just 0.24% of the offered new shares. This cost them £36.7 million between them and made an immediate paper loss of £5.6 million.

The fact that the remainder of the shares has been bought by the government, means that taxpayers have made an immediate paper loss of £2.4 billion, based on yesterday’s closing share prices.

Stephen Hester, Chief Executive of the RBS has said: “We regret that existing shareholders did not take up their pre-emptive rights but understand that the market sentiment towards the banking sector made this uneconomic in the short term.

“There remain substantial uncertainties and challenges outside our control but for our part the job is underway.”

At a meeting last week, shareholders of RBS voted to take the government money, even though there will be strings attached, such as the bank losing freedom in areas like executive pay and dividend policy.

It was also agreed that normal lending practices would be resumed. Therefore, the Bank is announcing that it will guarantee overdraft rates and contracts for its business customers for at least a year.

UK Financial Investments Ltd will hold the government’s shares of the Bank. This is in an effort to maximise value for taxpayers and try to prevent politicians from making business decisions about the Bank.

The chair of this company will be Philip Hampton who is also chairman of Sainsbury’s and was also the director of Lloyds TSB.

The Royal Bank of Scotland is, unfortunately, just one of many banks that has been exposed to the debt on the US sub-prime loans and felt the negative effects of this association.

The Bank has also felt the effects of the collapse of the inter-bank lending, as the whole industry worried about which fellow bank they could afford to lend to.

Critics are also saying that the Bank also paid too much for ABN Amro last year, which is another reason for its current problems.

The Bank led a group that paid 71 billion Euros (the equivalent of £61 billion) for the Dutch bank in October last year.

Prime Minister Gordon Brown has pledged that the government will work hard to ensure that struggling high street store, Woolworths, will remain open over the Christmas period.

He also told reporters that plans were being discussed so as to ensure that employees currently threatened with redundancy will be helped to find more work in the future.

This comes shortly after the most recent blow that the chain of stores has had to deal with recently, as lottery operator Camelot stopped selling tickets to stores.

Camelot declares its decision to suspend trading with Woolworths will become effective immediately, “pending the company finding a satisfactory resolution to its current trading difficulties.”

This means that Woolworths will no longer be selling National Lottery Tickets, scratchcards or process prize claims.

The chain will now be staying open until after Christmas, but there is still concern for the 30,000 employees that the chain currently employs.

The Prime Minister has said that: “the important thing is in the long-run that employees in this company – where the businesses and the shops are not going to stay open in the longer term – can get other jobs quickly.

“That’s why we’re going to move in immediately to give advice to employees in the company.”

Deloitte, the accountancy firm that has been appointed the administrator for the high street chain, has said that it is searching for a suitable buyer for the stores.

Dan Butters from the administrator said that: “In the last 24 hours, we have received expressions of interest from a number of parties for both the retail and wholesale businesses.”

The company did try to sell itself to restructuring firm Hilco, which would have taken the firms debt, but this deal fell through.

Deloitte has promised that though things are bad, it promises that employees will get paid.

Currently, Woolworths has 815 stores and four distribution centres, which employ around 25.000 people. It also owns Entertainment UK, which supplies DVDs to supermarkets across the country, and employs around 5,000 people.

2 Entertain is currently jointly owned by Woolworths and BBC Worldwide. Woolworths is currently trying to sell its 40% stake in this venture to BBC Worldwide.

Woolworths is just one of a few high street stores currently struggling, and analysts predict that worse is to come.

An analyst at Hargreaves Lansdown Stockbrokers has said: “the eye of the storm has moves in from the banks to the retailers.”

Other struggling stores include: MFI, who have also gone into administration.

Computer and Technology outlets, Currie, and PC World DSG International are blaming “tough and volatile” trading environments for their “29.8 million half year loss.

Kingfisher has also claimed that their profits at B&Q had fallen 9%.

Some fear that the ending of Woolworths could spark a price war if administrators try to cut prices in order to move the company’s stock, which could then lead to worse problems for smaller, weaker competing stores.

The Woolworths chain is currently struggling under its £385 million debt.

Its biggest problems started after having to pay cash for goods from suppliers, after trade credit insurers were no longer prepared to insure the suppliers to Woolworths.

Chancellor Alastair Darling has revealed that while he may be planning on cutting taxes in his budget, the government will also be borrowing record amounts in order to reduce the effects of repression as much as possible.

According to his pre-Budget report, high income homes will also face more tax, and National Insurance contributions are also set to rise across the board, as part of his “exceptional” measures in order to reduce the effects of recession next year.

Alcohol, tobacco and duty prices are set to rise enough to offset the VAT cut from 17.5% to 15%.

Conservative Chancellor, George Osborne, has accused the Labour party of trying to bring Britain “to the verge of bankruptcy” as the plans detailed in the pre-Budget plan will double national debt, which is set to reach £118 billion next year.

He has accused the government of creating a “huge unexploded tax bomb timed to go off at the time of the next economic recovery.” And also that Mr Darling had offered “temporary tax giveaways paid for by a lifetime of tax rises on the British people,” and that the UK had been “mortgaged to bail out the mistakes of the past.”

Liberal Democrat treasury spokesman, Vince Cable has also said that the government’s plans would not be enough to boost consumer spending, and that they would do better to “put money directly in the pockets of low paid workers by cutting their income tax.”

Mr Darling has also reduced the predicted growth of the economy for next year from 2.75%, to between -0.75% and -1.25%, the biggest downward revision recorded.

On the other hand, he has said that the government will inject either £20 billion or 1% of GDP into the economy in order to get things moving again, leading to an increase in government borrowing.

There is also expected to be a cutback in government spending, with the rise predicted to be at 1.2%, lower than in recent years.

The 2.5% VAT cut will come into effect on Monday, just in time for the peak in the Christmas shopping period, and will aim to put £12.5 billion back into the pockets of consumers over the 13months during which it will last.

Also, on top of their £10 bonus, pensioners will receive a one-off payment of between £60 and £120 in January.

The increase in duty on alcohol, tobacco etc however, will be permanent.

In measures that aim to try and get back some of the VAT that the government will be losing, top rate tax will increase to 45% in 2011 for people earning over £150,000 per annum from April 2011, and all National Insurance contributions for both employees and employers will be raised by 0.5%.

The starting line for National Insurance and income tax line will be brought into comparison with each other so that anyone earning less than £20,000 per year will not pay more contributions.

In defence of borrowing rate being almost double for next year than 2008, the Chancellor has said that “in these extraordinary circumstances allowing borrowing to rise is the right choice for the country. Taken together these steps will ensure money flowing into the economy when it is needed most, but we can reduce borrowing when growth returns.”

Other measures include speeding up the introduction of planned rises in child benefits, along with measures that aim to help small businesses struggling due to the credit crunch.

He has also announced that drivers will face a more gradual introduction of new vehicle excise duty, at only a £5 increase per vehicle next year.

And, of course, there was mention of work on motorways, schools and repair to council houses by bringing forward £3 billion of state spending.

Also for home owners, a scheme that covers mortgage interest payments for those that have lost their jobs will cover up to £200,000 of mortgages.

The other major change in order to try to boost the economy is that this year’s £120 income tax personal allowance per year for basic rate tax payers will stay and be increased to £145.

Chancellor Alistair Darling has begun to outline this year’s pre-Budget report, which is expected to include details of tax cuts in order to help fight the current recession.

It is expected that tax will be cut from the current 17.5% to 15%, paid for by 45% tax rate on earnings over £150,000 and a large increase in borrowing.

In his speech, which he began by saying that Britain faced “exceptional” economic circumstances, and that he wants to take “fair and responsible” steps to protect and support businesses and people to help with the future problems our economy will face, the Chancellor also said that he wants to ensure that the slowdown will be as shallow and short as possible.

He added that the current financial issues were a global crisis, but the World Bank and other institutions are confident that the global economy would recover strongly and even double in size over the next couple of decades.

Mr Darling’s primary aim is to get consumer spending figures up again in order to save businesses from going under. However, in order to achieve this, he has to borrow a record amount in order to pay for it.

The Pre-Budget plan outline is expected to give an impression of how the money could be paid back in the future through a combination of slowing growth, government spending and tax increases.
 
If all goes as it is currently expected, this could be the biggest shake-up of Labour’s economic policy since the party came into power in 1997.

The top rate of 45% will not come into effect until after the next general election however, which means that Labour will not be breaking its 2005 manifesto commitment on raising income tax.

On the other hand, the cut in VAT is expected to come into effect in the next few days, in time for the beginning of the major Christmas shopping period.

The BBCs Political Editor, Nick Robinson, has said that it’s a “defining moment” in British Politics. This is due to the fact that Labour is practically tearing up its previous economic policy and that this will probably determine the outcome of the next general election.

“Extraordinary times call for extraordinary measures”, were the words of Prime Minister Gordon Brown as he tried to justify the planned changes. He also said that in order to stop Britain entering into a long lasting recession, the government had to inject money into our economy.

According to the Prime Minister: “To fail to act now would not only be a failure of economic policy but a failure of leadership. Doing too little too late would mean more damage and more deterioration.”

Conservative party leader, David Cameron, has also stated at the CBI conference, that he was “sceptical” of the new measures that Labour are planning on bringing in. He also says that he believes this could hold back further interest rate cuts and warns that temporary tax cuts now could lead to permanent tax rises at a later date.

He said: “They might be talking about tax giveaways but everybody knows that they’re throwing money at us now, to take away at a later date.”

He also claimed that his party would freeze council tax, allow companies six months to pay their VAT bills, cut the tax rate for small businesses and introduce tax breaks for job creation, along with other measures.

Vince Cable, treasury spokesman for the Liberal Democrats, said that tax cuts were needed but he has warned that the government will have to make clear how they are going to pay back the amount they are borrowing.

He said: “By itself an increased tax rate on those earning over £150,000 would only raise negligible amounts of additional revenue.”

Recession in the UK will be longer and tougher than originally suspected according to business group CBI, which estimates that the economy will shrink 1.7% in 2009. This is hugely different to the 0.3% growth that was predicted in September.

The group also believe that unemployment could peak at 2.9million by 2010, compared to the current 1.8 million total.

Lord Mandelson, Business Secretary, defended the government’s plans to increase borrowing in order to try to boost the economy by saying: “We have to take every action we can as a government.”

He also said that the current recession is not the government’s fault, and that it is their job to do everything possible to make the recession “as short and as painless as possible”, adding that “now people will say but you’re resorting to borrowing in order to deliver the stimulus that’s needed. My answer to that is what is the alternative?”

Unite, are said to be drawing up a 10-point plan to invigorate the UK economy. This will include an increase in public spending; a halt to house repossessions; and a call for over a million affordable new houses to be built.

Along with these changes, Unite also want more support for manufacturing, tighter regulations on energy firms’ profits, tighter regulations of the financial sector and increased worker rights along with many more changes they believe will boost our current economic state.

Although the CBI report said that it hoped the recession would be “shallow”, October’s banking sector turmoil suggests otherwise.

Between July and September this year, the UK economy shrank for the first time in 16 years, suggesting we are in a repression, though technically, this can’t be confirmed until the fourth quarter statistics are in, it is expected that the fall in economic growth will continue.

The CBI expects that the economy will continue to contract by 0.8% in the final quarter of the year, and expect the economy to continue to shrink in the subsequent three quarters, before beginning to recover in 2010.

CBI’s deputy director general, John Cridland, has said that problems with the banking system over the last couple of months have sent consumer and business confidence plummeting.

He said that: “given the speed and force at which the downturn has hit the economy, we have reassessed and downgraded our expectations for UK economic growth, but the fast-moving and global nature of this crisis means it is impossible to look far ahead with any certainty.
“What is clear is that the short and shallow recession we had hoped for a matter of months ago is now likely to be deeper and longer lasting.”

According to Mr Cridland, the slowdown in the economy is due to a “double whammy”.
“First of all the banking crisis had really deep effects on the availability of credit for business – nor only credit from the banks, but credit insurance as well – and that is now proving troublesome for an awful lot of businesses small and large.
“Alongside that, the impact of relentless bad news every day on the news has caused people to stop spending – companies as well as individuals – so there’s a sharp fall in demand for products and services and businesses having to batten down the hatched.”

The Post Office has decided it will continue running its card account which distributes benefits to 4.3 million claimants.

Private firm, PayPoint, had proved to be competition for the running of the Post Office Card Account; however, ministers have now decided to close the bidding process.

PayPoint have said they are “disappointed by this decision”.

The National Federation of Sub Post Masters had warned that if the contract was lost, up to 3,000 post offices could close.

James Purnell, the Work and Pensions Secretary, has told MP’s that he would do “nothing to put the network at risk”.

The system was originally brought in so that giros and payment books for pensioners and benefit claimants could be ended, while allowing them to still use post offices to collect their benefits.

The announcement from Mr Purnell came two weeks earlier than expected, after criticism from MP’s that delays in the decision were “destabilising”.

Mr Purnell also said that the account was “central to the viability of the network” and added that the next contract would initially run from April 2010 to March 2015, but could possibly be extended after that point.

Some lawyers have said they have concerns over the possibility of legal action as a result of the decision, as well as a chance of an EU investigation into how the process to re-award the contract was conducted, even thought Mr Purnell is denying that the matter was mishandled.

In an interview with BBC Radio 4’s PM he said: “The circumstances have changed because of the current financial situation. It means that people are even more reliant on the Post Office than before.
“It’s a social service which people look forward to visiting. It is often at the heart of local communities. We can’t ignore the fact that the world has been changing.”

The chairman of the Treasury Select Committee, John McFall, has said that the government could be “accused of prevaricating” over the contract after they felt obligated to put it out to tender. He added that the ministers had made up their minds about the importance of the Post Office as a social business.

Unions that were involved in representing postal staff are pleased with the decision, but have also noted that the future of the Post Office depended on its ability to offer new services, especially in the areas of savings and insurance.

Andy Fury, from the Communications Workers Union, has called the Post Office “a national treasure” and said that the government should be doing more to transfer it into the “people’s bank”.

Alan Duncan from the Conservative party, on the other hand, called the decision a “humiliating climb-down for the government, who have done everything they possibly can to find a way of awarding it (the contract) to somebody else”.

Opposing party, the Liberal Democrats, said that the decision must come as a big relief to postal workers, but added that ministers had “some explaining” to do in how the process was handled.

Spokeswoman for the party’s work and pensions department, Jenny Willott, said: “The government has wasted time and money and caused immeasurable heartache by dragging this process out for so long.
“This could all have been avoided if, as the Liberal Democrats have long argued, the Post Office Card Account has never been put out to tender in the first place.”

Business secretary, Lord Mendelson told peers that he believes “very strongly” that there was an opportunity for the Post Office’s future here that had been “enlarged by the turbulence elsewhere in the financial services sector.” He added that the government’s closure plan had not been painless but had “placed the entire network on a much firmer footing”.

Prime Minister Gordon Brown has sparked talk of possible tax cuts by saying they could help support consumer spending. He also commented on the tax cuts that are planned in the US and Germany and said that countries must work together to tackle the global economic problems we are currently facing.

He has said that he is looking into “everything” that could possibly help the economy and would announce the details of the decisions made within days.

Conservative leader David Cameron has said he believes the Tories will announce “tax change to encourage businesses to take on workers”, and the Liberal Democrats have already admitted they would cut taxes for those that are paid less.

Gordon Brown has said that potential tax changes are a matter for the pre-Budget report, which is due out next week. But also said in a speech that “people are looking to governments for action” at the moment, drawing attention to the plans that Germany, the US and China have to help their economy, which mostly include tax cuts.

He said: “With Britain continuing to lead the debate, economic recovery will work better if we all work together…The benefits of any individual country’s fiscal action will be all the greater if this is part of a concerted and fairly distributed international response to maintain global demand.”

When asked about the possibility of tax cuts, Mr Brown replied that petrol duty had been frozen and people were already getting £120 back in their income tax after the government raised tax allowance following the 10p tax row.

“What I’m determined to do is get all countries around the world trying to get their economies moving again, and one way you can do that is by putting more money into the economy by tax cuts or public spending rises but that’s something we have got to look at in the next few weeks.” He told GMTV.

There have been reports that the Conservative party may propose National Insurance payments holiday for new workers in order to encourage employers to take on more staff, in their tax proposals.

Cameron has also warned against permanently damaging public finances, and is criticising the government because it had a large budget deficit before the recession even began. He has suggested that any new proposals should make clear where the money is coming from in the first place to stop the governments’ excessive borrowing.

On the other hand, spokesman for Mr Brown said that increasing borrowing is now the accepted view across the world, and that the government would have to look at all the issues relating to tax and spending.

Nick Clegg, Liberal Democrat leader, has said that they have been pushing for tax cuts for the middle and low income earners for months, adding that “We are the only party saying that tax cuts have got to be big, they have got to be permanent and they have got to be fair.”

He also said that in order to make the system fairer, “loopholes” that benefit only the rich on capital gains and tax relied on pension contributions had to be abolished, in addition to clamping down on tax avoidance and introducing more green taxes.

Ken Clark, the former Chancellor has been recorded as saying that previous efforts to boost the economy had failed and so it’s time for VAT cuts in order to encourage customers back into the shops.

Confirmation that the UK is defiantly in an economic recession came today as it is revealed that between July and September the economy has shrank for the first time in 16 years. If, in the fourth quarter of the year, the economy continues to slow, we will be in an official recession.

According to the Office for National Statistics, output has fallen 0.5%, a drop that was bigger than expected. This has knocked down UK shares, and weakened the pound, which is now at the value of $1.5889. This is the first time it has fallen below $1.60 since 2003.

Chancellor Alistair Darling has said: “it will be a difficult period, but I am absolutely confident we will get through it…We want to help people get through this period, putting more money in their pockets.”

The Chancellor has also said that the UK and other countries in the world need to work together, as they have recently in order to sort out recent problems with the worlds banks. This will ensure that everyone contributes to the effort, and that all countries change in order to control the recession as much as possible and try to lessen the effects it is going to have on global economy.

He has blamed the fall in UK output to the credit crunch, which has led to UK consumers ‘tightening their belts’ and therefore putting less money into the economy in the first place. But has also emphasised that there was a recession in the 70’s, 80s and 90’s, we got through those, and we can get through this one as well.

On the other hand, Deputy governor of the Bank of England’s rate-setting committee (MPC), Charlie Bean has said that this is  a: “Once in a lifetime crisis and possibly the largest financial crisis of its kind in human history”.

The 0.5% fall is the biggest drop in the UK gross domestic product (GDP) since the first quarter of 1990, and raises predictions of further interest rate cuts from the current level of 4.5% to ignite growth. This time last year, GDP was 0.3% higher, which was then the weakest rate of growth since the second quarter of 1992.

Representing three quarters of the UK economy, the service sector has fallen 0.4%, its biggest drop since 1990. Restaurants and hotels have seen the biggest fall. They are down 1.7% compared with a 0.2% increase last quarter.

Manufacturing output has also fallen by 1%, and construction by 0.8% compared to the previous quarter.

Analysts are shocked at the news and have shown that they want dramatic rate cuts.

Calling for a 0.5% cut in rates at the next meeting of the MPC and anticipating that rates will drop by 2.5% by the middle of next year, Business group CBI’s Societe Generale, Brian Hilliard has said:
“It is a very emphatic entry into recession which underlines the need for dramatic rate cuts, which we think the Bank of England will deliver.”

BBC economics editor Hugh Pym has compared this recession to the one in 1990, when over three million people in the UK were unemployed, and predicts that this recession could last a year or more. The biggest difference between this recession and the one in the 1990’s is that interest rates are much lower.

Both the Liberal Democrats and the Conservative party are criticising the current government for allowing the economy to reach this state, and are calling for tax cuts for the poor and more interest rate cuts.

Nick Clegg, leader of the Liberal Democrats has said: “these growth figures show that the credit crunch is hitting the real economy harder and faster than was first feared.”

In a true sign that it’s not just the UK that is facing some major economic problems at the moment, with the presidential seat hanging in the balance, it seems economy is high up on the list of campaigner’s priorities.

Democratic presidential candidate Barack Obama is set to meet with four governors of ‘battleground’ states, including Ohio, Michigan, Colorado and Florida to talk over his plans to rescue the US economy. In true political style however, Republican rival John McCain has told voters that he is the one to listen to about the economy. Mr McCain will be spending the day in Pennsylvania, while Mr Obama holds his job summit on the second day of his Florida tour.

Later this week, Mr Obama is set to take a couple of days out of his campaign in order to visit his grandmother, who is said to be seriously ill. Now 85 years old, she played a major role in the Democratic presidential candidate’s upbringing. Mr Obama has a substantial lead in the polls so far over his rival, but his absence is apparently still going to make his staff nervous, as elections are just two weeks away, and the current lead is so far not enough to guarantee victory.

Barack Obama will move his campaign to virginia and Indiana over the next couple of days, two traditionally Republic states, where he is doing well on the polls.

Mr McCain in the mean time is refusing that the current financial crisis is hurting his campaign, after it is reported that one of his senior advisors has said that “If we keep talking about the economic crisis, we’re going to lose.”

In retaliation to that however, Mr McCain has said that his party is going to be “focusing on the economy,” and has told voters. “Listen to me. I’m the candidate, and this campaign is about the economy.”

However, opinion polls so far suggest that voters believe more in Mr Obama’s chances of controlling the economy than Mr McCain’s.

Republican candidate, McCain, is promising that if he is to become President, he will do more to help homeowners defaulting on their mortgages, and that he plans to cut taxes in order to help create jobs. While campaigning in Missouri, he has accused Democratic rival Obama of plotting to increase taxes.

Even former rival Hilary Clinton is helping in Mr Obama’s campaign, by urging a crowd of around 50,000 people to help get Barack Obama into the presidential seat on the day that early voting opened in Florida.

Mr Obama has accused Mr McClain of “ugly” campaigning, and is focusing his campaign on the economy and those in the state that have suffered the effects of the mortgage crisis.