Brown's £6bn cost of Labour uncertainty

Friday, 05 June 2009 02:19

Uncertainty in the government and Gordon Brown's future as prime minister could cost the UK as much as £6 billion.

As the prime minister reshuffles the Cabinet to ward off a leadership challenge, the effect for the taxpayer could be huge.

Gavin Oldham, chief executive of The Share Centre, explained yield on government bonds is rising as certainty is growing and the long term cost for the taxpayer could be as high as £6 billion.

"The long term bond yield is up by a quarter of a per cent."

He added the move now seemed like the government was set to act as a caretaker before a general election in the autumn.

"The key thing of importance is the timing of a general election. It looks more and more likely there will be an autumn election."

Mr Oldham added without an autumn general election the warning from Standard & Poors of a downgrading of the UK's credit rating outlook to negative from stable becomes more significant.

"With the government looking to £100 billion of gilts every six months, it adds £6 billion to the long term cost. This is a very very high cost for the taxpayer."

Mr Oldham explained the equity markets were looking further ahead but stated a new government "needs to get a grip on public finances quick.

"The markets hate uncertainty. This [crisis] could be the beginning of the end of the uncertainty."

While the markets did want certainty, they were pointing towards a Conservative administration.

"In that case, there would be a serious and professional approach to public finances."

He added with public debt rising to £1 trillion, and possibly doubling once public sector pension liabilities are included, the state of government debt seemed unsustainable.

Mr Oldham also welcomed Alistair Darling keeping the post of chancellor.

"If you view the new cabinet as a caretaker, then it makes more sense to stick with the same man," Mr Oldman said.

"There is the feeling more and more the government is becoming a caretaker."

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