Social Market Foundation Proposes Childcare Loan Program

One growing economic concern is that many parents are unable to return to work due to their inability to find dependable child care. As the government tries to get more people back on the payrolls, they are looking for solutions to any issue that could potentially keep them out of work.

Social Market Foundation has proposed a new solution. They argue that they should be able to borrow up to £10,000 pounds for childcare. As they earn more money, those wages would be deducted from their weekly paycheck.

This solution would not only make it easier to get parents back to work. Additionally, these loans would be a long-term investment in children’s development. The thinktank argues that this is the only existing solution to both problems. Also, this idea wouldn’t cost the government anything.

The report emphasized that many parents could not afford to pay for childcare. With this system, the payments they would make would be made according to their income. However, they are going to be making payments over long periods of time. For families with smaller incomes, that could mean a couple of decades.

Although these costs could still create a long-term burden for some families, they could potentially spare them the much more devastating burden of being forced into unemployment. According to one poll, about 25% of families living in the highest levels of poverty stated that they quit their jobs because they couldn’t afford the cost of child-care.

These loans would charge an interest rate of 3% above the rate of inflation. This would be more manageable to consumers than many of the other loans they could receive.

The study’s coauthor said that they do not feel this is ideal for families by any means, but argues that it is the best solution available. The government has been forced to make significant budget cuts and will not be able to afford more budget cuts in the coming years. Loans may be the only way many families can possibly find childcare, even if they come with an interest rate premium.

The SMF authors pride themselves on the fact that they have created a potential solution that will help families in a time when the government can’t lend the same helping hand it was able to give them in previous years.

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Fred Goodwin Loses Knighthood and Causes More Turmoil for Banking Industry

The Honours Forfeiture Committee stripped Fred Goodwin of his knighthood on January 31, 2012. Goodwin led the Royal Bank of Scotland to financial turmoil which resulted in a massive bailout. However, his firm allowed a culture where extreme executive bonuses were allowed, even amid the banks facing serious losses.

Goodwin losing his honour is possibly the greatest shame he can face in his career. He now has to face the humiliation of other ousted knights such as Anthony Blunt, who lost his knighthood in 1979 after being ousted as a Soviet Spy. Blunt died four years later and was able to escape the fate of the hangman’s noose.

Although Goodwin may not as hated as Anthony Blunt, he is clearly not on anyone’s favorite person’s list. He was the chief executive officer of the Royal Bank of Scotland and his critics should that he disgraced the company with his leadership styles. The bank was founded in 1727 and has one of the most glorious histories of any bank in England. However, after Goodwin took over, the bank eventually needed the largest bank bailout in the nation’s history. The ire over the bonuses paid to executives has created even more controversy.

Goodwin attempted to expand the size of the bank through a variety of buyouts. However, his decisions didn’t pan out as well as he had hoped. In the end, the bank’s balance sheet amounted to nearly twice that of the entire British economy.

According to affidavits from the Financial Services Authority, Goodwin conducted deals of nearly 100 billion pounds without doing his due diligence. Some of the buyouts he engaged in consisted of data that consisted of a few folders and a CD. Investors and the FSA have gleaned this to be gross negligence. The buyout of ABN Holding NV forced Royal Bank of Scotland to face the largest loss any corporation ever experienced in the history of the UK.

Since the problems Goodwin caused, the government has taken a stake of over 80% in the bank. Stephen Hester has since been appointed to replace Goodwin as the head of Royal Bank of Scotland. Hester has also faced criticism for the role he has played in the crisis. However, he has made good on a few of his promises for reform thus far, including refusing a bonus of nearly 1 million pounds that was offered to him.

Goodwin and his colleagues still have some supporters. In a recent edition from the Economist, one writer described the situation as a witch hunt. The author (who’s name was not published on the article) stated that it was appalling that Goodwin was forced to surrender his knighthood while Hester has been condemned for corruption for merely trying to his best with a tough job.

Regardless of what position one may take on the issue, it is clear that the government is working even harder than ever to create new banking regulations to fight corruption. Whether or not it was necessary to strip Goodwin of his knighthood or not is beside the point. These efforts may be an indication that the government is ready to start taking a hard crack on banking reform and limiting the power banks hold.

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Welfare Reforms Won’t Include Child Welfare Benefits

The government has been facing a number of roadblocks in its efforts to develop new plans for welfare reform. Recently, they have proposed measures to create a £26,000 cap on welfare benefits. Representatives announced that the child welfare benefits will not apply to this rule.

The conservative base has attempted to create substantial welfare reform and is responsible for the initiation of the welfare cap. However, those policies have been consistently attacked by liberals. As a result, the reforms are not expected to be nearly as strong as conservatives would have hoped. Nevertheless, they feel that the cap is still popular and will be widely supported by the political community when it is enacted.

Lords Kirkwood and Ashdown are two of the liberals who took a stand against the bill. This is the fifth time the government has met to discuss potential reforms, but the first time that Lord Ashdown voted against the coalition. Ashdown demanded to know what reasons any of the ministers could have for denying benefits to impoverished families receiving less than £26,000 a year, but not to wealthier citizens earning more than thrice that.

The government will be forced to continue discussing how they will institute child benefits. New data shows that a cap of £26,000 will affect over 300,000 citizens, more than two thirds of which are children. The new measures will save almost £120 million in a year. However, exempting child benefits from the cap will mean that 40,000 fewer households will be affected.

More than half of the households that will be affected will be in London and surrounding areas. Due to rising costs of living in those areas, families affected by the declining benefits are likely to have a much more difficult time. The costs of renting have already risen more in London than almost every other area of the country.

Nevertheless, other critics continue to raise concerns over the child benefits exemption. They argue that because people receiving benefits are exempt from paying taxes, those earning £26,000 in benefits are essentially earning the same income as someone earning £35,000 a year before taxes. Many politicians argue that it is an injustice that a substantial number of working families are unable to make those wages, while others are allowed to earn them through government benefits.

The House of Lords must officially vote on the measures before sending them to Commons for approval.

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Lower and Middle Class May Not Regain Wages for 8 Years

According to new research from the Resolution Foundation, the lower and middle classes are having the most difficult time recovering from the recession. The report evaluated more than 10 million adults and their children. Those covered in the survey didn’t receive a significant amount of financial assistance from the government.

The report found that citizens in this demographic group would not experience a recovery in their wages until 2020. However, wealthy citizens incomes will continue to increase significantly over that time frame.

Last February, the Resolution Foundation issued a similar report on the cost of living increase. Labour leader Ed Miliband warned that an increase in the cost of living continues to place excessive burdens on the middle class, even though the overall economy improves. Miliband states that the Labour Department has failed to address the needs of the middle class in the past.

Spokesman and former Treasury Secretary Byrne will raise the report and the implications of its findings with his successor to Chief Secretary of Treasury, David Laws. Byrne and other members from the Foundation intend to find solutions. The two former and current Treasury Secretaries haven’t spoken since Byrne left his position to take over as the Shadow Secretary of State for Work and Pensions in 2010. Byrne’s last communication to Laws came in the form of a letter that read: “Dear Chief Secretary, I’m afraid to tell you there’s no money left.”

Since Byrne resigned as the head of the Treasury, the economic conditions have decreased significantly. This is another trend that paints a bleak picture for the middle and lower classes. If the UK faces another recession, wage growth may decline even more in the coming years.

In an interview with reporters, Byrne warned that the UK faces the possibility of a lost decade. This was the fate that the United States experienced due to the onset of the Great Recession. New measures will need to be implemented to prevent such an outcome from arising.

Byrne warned that the government’s reform methods fail to create new jobs. Also, changes in welfare packages are only benefiting citizens who are not currently working. New packages are going to need to be implemented if the government intends to improve the conditions of the working class.

According to the study’s author, the middle class did not get to enjoy the financial benefits from the booming economy before the recession. He implied that the wealthy continue to benefit at the expense of the working class even as the economy transitions from recession to stagnation.

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Inflation Falls On Weak Consumer Demand

In face of weaker demand among consumers, retailers have been forced to cut prices considerably. As a result, inflation has hit a six month low. The inflation rate now rests at 4.2%. This is a staggering drop from the 4.8% rate in November and the 5.2% peak rate the economy faced in September. The Office for National Statistics also reported that the rate of retail inflation dropped from 5.2 to 4.8%.

This was predicted by the Bank of England a long time ago. Economists from the central bank argued that the inflation rate would have to drop as consumer demand fell. Household spending has declined considerably and customers have collectively been forced to cut costs.

The drop in inflation may be difficult for many retailers already struggling to maintain sales projections and healthy profit margins. However, the change in the consumer price index is welcomed by many consumers who have already been struggling to get by with existing prices.

The drop in inflation is especially welcomed by many people who are facing reductions in government benefits over the next year. Many of these people are literally forced to decide between paying rent and buying food to support their families. The last time the inflation rate dropped so considerably was three years ago, when the value added tax dropped in response to the global financial crisis.

According to Chris Williamson, a leading economist with Markit, the inflation rate is likely to continue to decline over the coming months. Williamson said that this is a necessary development as the UK economy struggles to regain its ground.

In addition to making life easier for consumers, a declining rate of inflation may be necessary to rebuild capital and improve the efficiency of financing. A reduction in inflation also suggests that the Bank of England may be able to start a new quantitative easing program in February. That decision will be announced when the BoE publishes its quarterly report.

As the country continues to face the possibility of  a new recession, the UK is looking forward to any positive economic data available. Although a declining rate of inflation isn’t a guarantee that the economy will turn around right away, it offers new hope and places less of a burden on many consumers throughout the country.

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IMF Concerned About The Threat Austerity Poses to Global Economy

As debt ridden countries struggle to reduce their debt burdens, they are turning towards austerity measures. While this seems like a logical way to address the issue, the International Monetary Fund has warned countries that these measures could create serious problems for the global economy.

The IMF has joined forces with the World Bank, the World Trade Organization and nine other organizations have collaborated to address these issues. They have decided that they will create a call to action which will focus to protect the global economy.

The IMF and its allies are concerned about protecting the growth of the global economy and containing social unrest. IMF chief Christine Lagarde has stated that the world is increasingly concerned about rising unemployment. Lagarde and the leaders of the other world organizations are insisting that governments create new policies that will create jobs and promote economic stability for individuals among all classes in society. Addressing other key issues such as disparity of income is also key to keeping global citizens content.

Collectively, the 11 organizations have compiled a report that emphasizes the magnitude of the crisis facing the world. They clarified that the problems facing the world threaten the stability of the world and their ability to bring their societies together to promote global stability. They show greater concern over the economic developments in the Eurozone, which raise the threat of a global recession. They caution that austerity measures may not be an adequate means of addressing the Eurozone’s crisis.

Rising unemployment could create a number of potential social and economic consequences. These include nations placing more limitations on free trade, as they struggle to keep capital and jobs within their own countries.

Due to these concerns, the IMF, WTO, Financial Stability Board, World Health Organization, Organisation for Economic Co-operation and Development, African Development Bank, Asian Development Bank, Inter-American Development Bank, United Nations World Food Programme and International Labour Organisation have outlined the steps countries should take to resolve their crises. In their quest to address these challenges, the 11 organizations warned nations around the globe that they should implement austerity in a way that promotes growth rather than detracts from it.

Developed and developing nations are meeting in Mexico in June for the next G20 meeting. The IMF and the other organizations in the coalition believe that they should have a plan in place to address the economic problems and the need for austerity during that time.

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Government Claims 50p Tax Rate About to Be Withdrawn

The prime minster has said that the 50p tax rate on wealthier citizens can only serve as a temporary measure for bringing in revenue. Cameron insists that it will be withdrawn, even though it created a substantial amount of revenue for the country during the first year it was enacted.

The decision will inevitably create a substantial amount of conflict between the two political ideologies. Although conservative leaders argue that abolishing the tax will be in the best interest of the economy, their liberal counterparts are not so convinced. The Democrats feel that the decision may be implemented solely to protect the interests of the wealthy.

The HMRC is going to issue a report that will show some perspective on the issue. This report is likely to show that the tax on high income earners has created hundreds of millions of pounds. As a result, the government has been determined to keep the tax going until at least 2015. However, the decision not to end the tax prematurely is clearly politically based.

Critics argue that ensuring the tax remains permanent is essential to financial reform. Without ensuring that people with the means to pay more to keep the country running are going to do so, the country is going to have a hard time getting its debt problem figured out.

There are also outcries that the system is going to be self-sustaining and equitable for everyone involved. The government has announced that it is making significant cuts to benefits, which are likely to keep many people from being able to afford a home. Cutting taxes to wealthy citizens at a time when impoverished people are struggling more than ever before may be perceived as a sign that the government has chosen to ignore the interests of the people who need the government’s support the most.

Nonetheless, Cameron’s statement to reporters made a good point. He emphasized that they are going to need to know how much money the country is bringing in before they decide whether or not to continue with the tax. Obviously, if the HMRC report shows that the tax has failed to bring in the revenue it projected, then it will be difficult to argue that the tax serves much of a purpose.

The 50p tax shows a struggle between the classes and the need to balance the needs of everyone involved.

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Germany May Ask for a 50% Haircut on Greek Debt

The Greek debt crisis continues to become a major concern for the world economy. According to the International Monetary Fund, the debt to GDP ratio of Greece will probably reach 200% at some point over the next year.

The problem with Greece is becoming a major concern. As Germany starts to look for new ways to help get the debt crisis under control, they have proposed a radical solution. They have suggested that Greece request private creditors to take a 75% haircut on Greek debt. This is likely to have a significant impact on the already struggling banks. However, Germany and other members of the EU are considering that this may be the solution of last resort and may be needed to turn the debt crisis around.

Discussions are currently taking place about the best way to deal with the debt problem. However, there is some skepticism as to how much good a 75% debt haircut would be on private debt. Greece already got creditors to agree to a write-off back in October. They have claimed that the debt problem is still spiraling out of control and debt to GDP is already back to what it was before. This makes it progressively more difficult to get the debt problem under control without real reform.

However, Germany’s Ministry of Finance argues that this is a good start. As the people continue to debate the solutions for the Greek debt crisis, it is clear that Greece is in over its head. As Germany becomes reluctant to continue the bailouts indefinitely, they have concluded that it is probably necessary to start creating something of a structured default. As long as private creditors take a voluntary loss on Greek debt, they feel that the country still has a reasonable chance of recovering.

Whether or not Germany is proceeding correctly remains to be seen. However, it is clear that Greece is running dangerously low on time and they are going to need to come up with a real solution if they have any chance of recovering from the mess they are facing.

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Brazil's Economy Surpasses UK

According to a report from the Centre for Economics and Business Research (CEBR), Brazil has overtaken the UK as the world’s sixth largest economy. This report confirms a prediction by the International Monetary Fund earlier this year that stated that Brazil’s economy would surpass that of the UK.

At first, many people were very skeptical of these claims, even though Brazil’s population is approximately three times the size of the UK’s. However, Brazil’s economy grew by nearly 8% in 2010. The economy was expected to grow substantially in 2011 as well, but the growth forecast was cut in the third quarter. High interest rates were the primary problem, but production also decreased as more businesses became concerned about the crisis in the Eurozone.

Also, Brazil is struggling to maximize its trade balance as businesses are forced to compete with Chinese manufacturers. Although Brazilian manufacturers still sell more goods to China than they import, the cheap prices of Chinese imports still play a substantial impact on their ability to stay competitive.

According to the report, European countries are losing some of their muster. Meanwhile, many Asian countries are expanding their economies substantially. According to CEBR’s CEO, many developing countries are doing well as they produce commodities that the rest of the world depends on.

The debt crisis in the Eurozone will play a major role in the future of the economy in countries throughout Europe, including those outside the Eurozone itself. In fact, the debt crisis is expected to shrink the economy of nations throughout the Eurozone, regardless of whether it is solved or not. However, if the crisis isn’t solved, it may shrink the economy of the Eurozone by a whopping 2% or more.

According to Douglas McWilliams of the CEBR, the world is undergoing a massive economic change. Economic power is being transferred from Western to Eastern countries. Also, industrialized nations that have traditionally dominated the economy are being overtaken by developing countries with a competitive advantage in producing basic commodities.

The CEBR report lists the UK as the seventh country on the list. They now follow the United States, China, Japan, Germany, France and Brazil. According to the 2020 forecast, the UK will surpass France in terms of economic growth, but will drop to the eight country on the list. India and Russia are growing substantially and are expected to rank fourth and fifth respectively in terms of economic size.

 

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ECB Lends Record Amount of Money to Eurozone Banks

The European Central Bank announced its intentions to lend European banks €489 billion. These loans are an indication that the banks are having a difficult time lending to each other. The ECB is looking to protect banks and other investors from the possibility of a major sovereign default among the PIIGS and other countries in the eurozone.

This is a major precaution as a number of investors are concerned that the sovereign debt crisis is spiraling out of control. This bailout is even larger than the bailout issued to Lehman Brothers in 2008. In fact, it is the largest bailout that has been issued since the euro formed in 1999.

The loans will be issued over a three year period to the 523 banks that applied. ECB vice president Christopher Noyer has suggested that banks use this money to purchase sovereign debt. However, many investors wonder if this is a good idea. One of the reasons the ECB issued the loans in the first place was to protect the banks in case the ECB defaulted on their sovereign debt.

The ECB also suggested that banks use about half of the money to refinance some of their existing loans. This will hopefully prevent banks from having to cut back on loans that the economy is depending on to grow and thrive.

Although the ECB’s actions are attacking one of the key problems in the eurozone, they do not address the core problem facing the region. European countries are facing unsustainable borrowing costs. Although the rates on Italian bonds have dropped below their high of 7 percent, the region is still going to have a difficult time repaying these loans. They will likely face even higher borrowing costs if rating agencies begin to cut ratings throughout the eurozone.

The European Central Bank continues to look for solutions to the massive financial crisis facing the EU. Thus far, they have helped increase liquidity, which may be a good indication of future economic growth. However, they may be limited in their ability to fix the problem facing Europe. The EU is going to need new ways to fix the sovereign debt crisis and fuel GDP growth throughout the region. Addressing both issues simultaneously is likely to be difficult, but will be necessary to fix the concerns facing the region.

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