Peston's Picks

The rising taxpayer burden

• Robert Peston
• 11 Nov 08, 09:35 AM

For me, the most interesting story of the past 24 hours is that VW, the stressed German carmaker, is trying to raise €2.8bn (£2.2bn) from the European Central Bank.

It plans to raise cash from the ECB in exchange for €2.8bn of securities backed by car loans.

In effect, the ECB - and ultimately taxpayers in the eurozone - would be financing purchases of automobiles.

Crikey, is all that comes to mind.

What next?

Perhaps Marks & Spencer will be able to dump its unsold jumpers and knickers on the Bank of England, in exchange for a bit of useful short-term credit (the contraction in retail sales for October reported today by the British Retail Consortium is the first fall that the trade body has ever reported that wasn't caused by special factors, such as the timing of public holidays).

Or perhaps the Bank of England will allow Taylor Wimpey - which reported pretty dire results again today - to swap its unsold houses and land for some Treasury bills via a re-worked special liquidity scheme.

If only the Bank of England and taxpayers would refinance Taylor Wimpey's £1.9bn of net debt, the battered housebuilder wouldn't have to make veiled threats to its banks and bondholders that administration under insolvency procedures is an option, if the lenders don't agree to make the terms of their loans less onerous.

I don't expect the Bank to become so liberal in the provision of loans and liquidity, but I am not being wholly flippant - since a great deal of the dire economic straits we find ourselves in stems from the contraction of credit from normal commercial sources.

And, because of that, expectations are rising by the day about what we as taxpayers can provide in incremental loans to limit the pain.

As you'll recall, around the world taxpayers have provided a staggering £5,000bn of support for ailing banks. And I haven't included in that the astonishing funding provided by the US authorities, the US Treasury and the Federal Reserve, to AIG, Fannie Mae and Freddie Mac.

There's literally no point in sharing with you the losses announced yesterday by AIG, the radioactive insurer, and Fannie Mae, the mortgage provider. Those losses run to so many billions of dollars that they defy comprehension.

In a way, therefore, I see the UK's "whose-tax-cuts-will-be-biggest?" competition between the political parties as a bit of a sideshow.

Doling out a few extra pounds to most of us would probably be no bad thing, if we were to spend it (hoarding it would do the economy little immediate good - but there is quite a risk that we would hoard it).

But it's a bit like a blood transfusion for an ailing patient. It'll provide a bit of extra energy, but it doesn't deal with the underlying cause of the disease - which in this case is a global contraction of lending.

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