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05/03/2011 Mervyn King: Bankers exploit gullible …

Mervyn King: Bankers exploit gullible


borrowers to pay for their bonuses
Bankers hit back at Bank of England governor after he warns that
drive for profit could spark another credit crunch

Andrew Clark, Business Editor


guardian.co.uk, Saturday 5 March 2 01 1 1 7 .47 GMT

Merv y n King, the gov ernor of the Bank of England, has hit out at banks that exploit 'gullible or
unsuspecting custom ers' for short-term profits. Photograph: Kathy Willens/AP

A fragile peace pact between the government and Britain's top banks has fractured as
the Bank of England's governor, Mervyn King, delivered a scathing rebuke to top
financiers for taking big bonuses while exploiting "gullible or unsuspecting" customers.

In an attack that drew an angry reaction from the Square Mile, King suggested that
"imbalances" in the banking system are beginning to grow again, posing a risk of another
credit crunch.

The governor, who will get broad powers to regulate the banking industry when the
Financial Services Authority is abolished next year, accused high-street lenders of taking
a short-term view to "simply maximise profits next week". And he asked: "Why do
banks in general want to pay bonuses? It's because they live in a 'too big to fail' world in
which the state will bail them out on the downside."

King's remarks, to the Daily Telegraph, are his sharpest swipe yet at banks, which had
hoped that last month's Project Merlin agreement to increase small business lending
would draw a line under criticism of their behaviour. The governor's comments were
widely interpreted as a warning to the chancellor, George Osborne, to heed any
recommendation of a break-up of big banks by an independent commission.

The deputy prime minister, Nick Clegg, echoed King's comments in his speech to the
Scottish Liberal Democrat spring conference in Perth.

"I understand why people are angry when they hear about the super-sized salaries and
bumper bonuses awarded to top bankers," Clegg said.

"I am too. I agree with Mervyn King today that the job of making our banks safe and
responsible is not yet complete."

The British Bankers' Association rejected King's comments as superficial and outdated.
The lobbying group's chief executive, Angela Knight, said: "There have been massive
changes within the industry which I don't think have been recognised in his comments.
Nobody can build a business unless they're close to customers and providing people with

guardian.co.uk/…/mervyn-king-banker… 1/14
05/03/2011 Mervyn King: Bankers exploit gullible …
products and services that they want."

Knight said that, far from being too big to fail, banks were facing new legislation allowing
them to be wound down in an orderly manner if they get into trouble. She defended
bonuses: "You either pay the going rate in an industry or your workforce walks off down
the road."

No stranger to political heat, King has been the Bank's governor since 2003 and came
under pressure last year when WikiLeaks cables revealed he had made disparaging
comments to the US ambassador about David Cameron and George Osborne. Last week,
he told MPs on the Treasury select committee he was surprised public anger towards
banks had not been even greater.

This weekend, he accused banks of routinely ripping off clients: "If it's possible to make
money out of gullible or unsuspecting customers, particularly institutional customers,
[they think] that is perfectly acceptable."

Asked whether there could be a repeat of the financial crisis, King said: "Yes. The
problem is still there. The search for yield goes on. Imbalances are beginning to grow
again."

Shadow Treasury minister Christopher Leslie said King's comments highlight the
government's failure to extract lasting commitments to reform from the City: "Project
Merlin was supposed to draw a line under these issues but it failed to convince the
public, or even the governor of the Bank of England, that the balance of risk and reward
was correctly established."

Many financial experts believe that Sir John Vickers's five-strong independent
commission on banking, which reports later this year, will call for a clear separation
between high-street and investment banking operations to prevent the public from
footing the bill for catastrophes on City trading floors. But the chancellor, who is keen to
offload the Treasury's shareholdings in bailed-out banks such as Lloyds and RBS, is
believed to be cautious about major structural changes.

The economic secretary to the treasury, Justine Greening, told BBC News that King's
criticisms of banking were likely to strike a chord with the public: "People will recognise
a lot of his comments about regulating the banking industry and in terms of how [the
banks] deal with consumers."

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nickmavros
5 March 2011 6:01PM
"Bank of England governor warns that drive for short-term profit could spark another
credit crunch" - what? I thought there was still a credit crunch!
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holzy
guardian.co.uk/…/mervyn-king-banker… 2/14
05/03/2011 Mervyn King: Bankers exploit gullible …
5 March 2011 6:01PM
Someone should remind Clegg he's deputy PM ...
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mariansummerlight
5 March 2011 6:03PM
Like Nero the gov't keep fiddling.
Constantly reforming and tinkering with what needs to be left alone they ignore the
financial sector which is desperately in need of reform, pay caps and restructuring.
Kings comments are probably two years too late, he should have been saying this when
the banks failed and pursuaded Brown to tackle the systemic problems, ensuring a
robust financial sector and preventing the inevitable second crunch.
Not much chance of this lot listening though, given how much the city contributes to tory
party funds and the hope of nice fat directorships.
Still, more grist to the mill.
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SpangleJ
5 March 2011 6:04PM
If King can't lead change from his position on the inside, it doesn't bode well for the rest
of us.
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Phalanxia
5 March 2011 6:04PM
In an attack that drew an angry reaction from the Square Mile
Good!
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Littleorangedogs
5 March 2011 6:04PM
I must say, King is going up in my estimation every day. I'm looking forward to him
taking over as regulator.
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FredinSpain
5 March 2011 6:05PM
How long as King been in the high paid job as Governor of the BOE.
If it's taken him this long to work out that bankers screw people he must be really thick.

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quelter
5 March 2011 6:06PM
One of the few people who seems to agree with bankers' bonuses is Eton public-
schoolboy Boris Johnson.
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CorneliusLysergic
5 March 2011 6:07PM
Steagall-Glass Act now. Else it won't be just a credit crunch, it will be another collapse.
Difference - there's no money left to prop up the banks. NOTHING has been done to
legislate for what happened at the end of 2007.
In this household, I'm out of work and on the scrapper at 60, and my wife's earning are
now such that she works to be able to afford to travel to work. Fucking brilliant eh?
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nickmavros
5 March 2011 6:07PM
The British Bankers' Association rejected King's comments as superficial and outdated.
The lobbying group's chief executive, Angela Knight, said: There have been massive
bonuses within the banking industry which I think have been rightly deserved. Nobody
can build a banking business unless they're close to customers so as to be able to milk
them with the costly products and services that we provide.
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Blittern
5 March 2011 6:07PM
At last. Well done Merv! However you are wasting your breath unless the government
acts against the banks, which now seems very, very unlikely. unfortunately, the
Libdems appear happy to prop up the Tory financiers. So, second credit crunch here we
come........
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Soapbox22
5 March 2011 6:08PM
Well there will be alot of top bankers crying into their caviar and champagne now these
REALLY important influential people are sounding a bit cross.
I would say they may even get a touch of indigestion.

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Still never mind....more big bonuses to help them get over it AGAIN next year I suppose
:-S
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guysheard
5 March 2011 6:09PM
The British Bankers Association show themselves for what they are: a bunch of hangers
on, not intelligent enough to get a job in the BofE or the banks, not innovative enough to
set up their own businesses, very adept a trotting out tired old tripe for a fee. So why
even quote them.
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bullwick
5 March 2011 6:10PM
The simple answer is NOT to bail banks out next time........let them go bankrupt. If they
knew that was the final consequence they would start to squirm. No organisation is
bigger than the State, someone tell Cameron and be quick about it.
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Salfordian
5 March 2011 6:10PM
I read this in the Telegraph this morning and the comments were amazing. Quite made
my day.
On a more serious note: I think he is absolutely right. When and if we get out of this one
I am sure another one is just round the corner.
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Salfordian
5 March 2011 6:11PM
Recession, that is.
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Davy123
5 March 2011 6:14PM
The man is a fool..
Before the bust King was asked about house inflation. His answer, "It's not in my remit."
So this fool sat and watched the money supply explode.
So many saw it coming.
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Williamlw383
5 March 2011 6:14PM
He's dead right, my bank is a pain, they keep moving the goal posts and push you to to
buy stuff you don't need or want..because they work bonus systems.. They should
provide a service not act as pushy car sales men, I can see how many people get
suckered into the bloodsucking banker blender..
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bob15
5 March 2011 6:16PM
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felixheavier
5 March 2011 6:17PM
Funny, I thought it was all Labours fault.
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altwebid
5 March 2011 6:20PM
Is Mervyn going to be running for office soon?
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TheMightyLegoMan
5 March 2011 6:27PM
@felixheavier
Oh dear, looks like Mervin isn't sticking to the script Gideon and his chums sent him.
Bet Georgy boy spat his Coco Pops this morning.
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MattPrescott
5 March 2011 6:28PM
I hope that the doesn't Government chicken out and fail to split the utility and gambling
activities of our banks.
It is unacceptable for the big banks to continue gambling with our savings and pensions.
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Cromwell82
5 March 2011 6:30PM
I bet Mervyn (having done his bit for the good of the country) is having a bloody good
laugh with his old banking buddies; probably over dinner in one of London's top
restaurants. And WE are paying for it.
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frederama
5 March 2011 6:31PM
King's comment is:
a) not surprising - he was talking about the moral hazard as the credit crunch struck.
But things were so bad governments' had no option but to bail out the banks.
b) a bit of an arse covering exercise - the next credit crunch is already on the way.
If bankers were to pay for their reckless behaviour - lets say the ultimate sanction for
wrecking the economy is pain of death - all of a sudden I'm in favour of capital
punishment - the risk they would put in to stupid, reckless gambles would be minimised.
c) worrying for both of the above reasons. (Multiplier effect.)
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TheLastWord
5 March 2011 6:32PM
Mervyn may be saying the right things now - but the bankers don't seem to care, do
they? And why should they...? - when not one person in Government is prepared to
make them...!
If only SOMEONE in our self-regarding coalition would take his or her responsibility to
punish the crippling consequences of wayward bankers even half as seriously as Ian
Duncan Smith and George Osborne demonstrate their salivating determination to
persecute so-called "benefit fraudsters," this country might at least stand a chance of
putting its broken, sadly unequal, society - and economy...! - to rights...!!!
Of course, King's words are much to be welcomed - but could we see some ACTION
PLEASE...!!!
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UsedToVoteLibDem
5 March 2011 6:34PM
At least we know we have one person in the Bank of England that thinks we have a
problem!
I would find it hard to believe that this interview is King's alone.
I remember watching an interview with Warren Buffett on the Money Programme, late
1990's, he was highly critical of the banking world in that interview. Talked about many
of the issues that brought about the banking crisis. He said he did not understand how
things like derivative's would work, toxic debt caused by lending more than something is
worth on the hope of it reaching the lent value at some point in the future. A banking
employee was interviewed for comments on Buffett's words. He pretty much said that
Buffett did not understand modern economics. Mr King seems to be talking Buffett's

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language! Maybe Osborne, Clegg and Cameron should talk to Warren about his 1990's
thoughts, then legislate, prepare taxes, to hit the goals that bring a banking industry that
matches the goals of the United Kingdom. At the same time, can they ask the US to take
Boris and shove him in Guantanamo Bay.
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KatyCat
5 March 2011 6:34PM
Angela will be back on CiF soon with her usual vapid propaganda - Sir Ken (Macdonald)
had the very best line: laws 'to confront the...people who have done their best to steal
our economy' are long overdue. Sadly for most of us, what they've stolen has part
financed the purchase of a new PR Director in the shape of one D Cameron and his
obnoxious sidekick Gideon.
When this all ends - as it surely - it's going to get very messy.
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giveusaclue
5 March 2011 6:38PM
This guy has been Governor of the Bank of England since 2003. Did he at any time
before the credit crunch say anything about:
a. the very obviously unsustainable house price inflation fueled by lending at
too high multiples.

b. the frightening rise in credit card borrowing that went on for years.
c. bankers bonuses which have been going on for years.
d. quantative easing that would fuel inflation and devalue the £
e. the FSA was only fit for fining banks for not dotting i's and not crossing t's
on forms?
f. he knew that Northern Rock's business plan was unsustainable a year
before it went belly up?
Did he heck.
He sat back and did nothing just like others we are not allowed to criticise.
So you are several years too late Merv.
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m1ta
5 March 2011 6:38PM
King couldn't care less about the public. He simply feels the balance of the scales of public
opinion swinging away from the 'right' and is trying to align himself with the winning
side.
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bob15

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5 March 2011 6:38PM
TheLastWord
Mervyn may be saying the right things now - but the bankers don't seem to
care, do they? And why should they...? - when not one person in
Government is prepared to make them...!

All Lib Dems MPs have to do is threaten to become an independent or a


Labour or other MP and the tories will lose the colation majority unless
they change the law and budget to close down huge tax loopholes.
They need to demand closure of tax loopholes and the budget that allow tens of billions
to be avoided and evaded and they need to stop tories plans to cut tax inspectors that
will not help stop tax fraud.
The money can be then used to reduce the cuts and help the UK.
Osborne also needs to stop wasting his time arguing over keeping the regulation the UK
has now that caused the banking crisis that the bank of england wants to change.
If he is serious about UK jobs he should be approving he UK green bank to help green
jobs in Scotland and other parts of the UK that will create well paid jobs.
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lewkay
5 March 2011 6:40PM
SpangleJ, Littleorangedogs -
Your comments betray complete ignorance of history. Both the fact that King and the
Bank did recognise every single reason that sparked the crisis prior to the event (don't
believe me, look at larry elliott's june article). The people who deserve your scorn are
not not King and the MPC, but the people who were running the FSA pre-crisis - it was
their responsibility to take the action to protect financial stability and prevent banks
from undertaking the sort of activity that ultimately made the crisis the disaster it was
(if not directly causing it).
Cromwell82 - you're just an idiot.
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theantipodes
5 March 2011 6:41PM
This "we have to pay the going rate" line is running thin, and looks very much like there
is little or no competition for banking positions.
Surely, according to the free-market model, when provision of a service gets too
expensive, other players emerge and enter the market, driving competition and prices
(bankers' wages) fall?
No, the UK is ridden with tight-knit cartels in the various industries, which keep the
supply tight, lock out people who don't toe the line, and keep sucking until they get too
fat, bloated and unhealthy from too much fois gras, die and are replaced by one of their
own.
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Halo572
5 March 2011 6:43PM

guardian.co.uk/…/mervyn-king-banker… 9/14
05/03/2011 Mervyn King: Bankers exploit gullible …
Good on him. It has taken 10 years to find his tongue and sat through it all when the
times were good, but at last he is going to tackle those who continue to destroy our Great
Nation from within every day.
Anyone who says that he is just trying to deflect the blame from himself and save his
own skin as he is incompetent and clueless will answer to me. You have been warned.
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giveusaclue
5 March 2011 6:45PM
alo572
5 March 2011 6:43PM
Good on him. It has taken 10 years to find his tongue and sat through it all when the
times were good, but at last he is going to tackle those who continue to destroy our Great
Nation from within every day.
Anyone who says that he is just trying to deflect the blame from himself and save his
own skin as he is incompetent and clueless will answer to me. You have been warned.

Quaking in my boots.
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knowyourself
5 March 2011 6:48PM
Very courageous stand by Mervyn King. We should be very worried, as the next
banking crisis will completely destroy the British economy. The only point I disagree
with Mervyn King is Britain will be unable to bail out the banks, the resources will no
longer be available. I am amazed Angela Knight can keep a straight face when she is
defending the Banks.
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jekylnhyde
5 March 2011 6:49PM
Who is this man? Give him a bloody medal somebody. They all know what's wrong but
he's the only one who's saying anything. I presume he could make as much money out of
it as the others who keep their mouths shut.
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hugatoryhugsnotvotes
5 March 2011 6:50PM
Bit off topic... but i'm worried about the earth's air supply. Is there anyway we can make
the benefit scroungers, prisoners, immigrants and asylum seekers breathe less air? The
idea of them getting the same amount of air as a "hard working British families" makes
me physically sick.
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DuckDestructor
5 March 2011 6:50PM
Sustained ultra-low interest rates, the blessing of CDO's by the regulators, massive
spending by government, weak leadership causing unaddressed chinese mercantilism.
Sure, the bankers did there part in imprudent 'investment' but it was the governors,
including this chump, that tempted them. But for the actions of the central bankers the
mantra of "debt is good" could not have happened.
Mervyn King is doing gymnastics with the truth and he's no 14 year old Romanian. It's a
revolting spectacle.
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Door
5 March 2011 6:52PM
The current spending cuts and tax hikes in the UK are completely unnecessary. We
could avoid them by simply making one good cut - to cut the benefits for bankers.
http://www.onegoodcut.org
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gcb01
5 March 2011 6:56PM
without in any way whatsoever wishing to excuse the banks, sort-termism is a product
of the stock market where too much emphasis is put on the next set of half yearly or
quarterly results.
In two different footsie-100 plc environments, I had to organise last-minute campaigns
or product launches to "get the numbers up" by whatever date was considered critical.
While it was fun, I don't think it was the best way to run a business for the medium to
long term.
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iamnotwise
5 March 2011 7:01PM
giveusaclue
5 March 2011 6:38PM
This guy has been Governor of the Bank of England since 2003. Did he at any time
before the credit crunch say anything about:
a. the very obviously unsustainable house price inflation fueled by lending at
too high multiples.
b. the frightening rise in credit card borrowing that went on for years.
c. bankers bonuses which have been going on for years.
d. quantative easing that would fuel inflation and devalue the £
e. the FSA was only fit for fining banks for not dotting i's and not crossing t's
on forms?

guardian.co.uk/…/mervyn-king-banker… 11/14
05/03/2011 Mervyn King: Bankers exploit gullible …
f. he knew that Northern Rock's business plan was unsustainable a year
before it went belly up?
Did he heck.
He sat back and did nothing just like others we are not allowed to criticise.
So you are several years too late Merv.
Maybe he is culpable. He might be trying to score points. However, at last someone who
matters is mentioning the truth. If we defend the current system, we allow the
possibility that an unregulated financial industry will cause another calamity that will
have never-ending consequences. We can survive the last meltdown - but there is no
way the world can survive another. And when that happens, even the sophistry of those
defending the current status quo will not protect them from starvation and violence.
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bob15
5 March 2011 7:02PM
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s1syphus
5 March 2011 7:09PM
@theantipodes
I was reading through the article with one word buzzing around my head: 'cartel.
Banking isn't a system, it's not a free-market. It's a fucking cartel. A price fixing, profit-
fencing cartel'
I'm glad you beat me to it!!
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moriarty5
5 March 2011 7:13PM
It is becoming tiresome to hear politicians, particulary those in office like Clegg, declare
themselves angry about a situation but go on to do nothing about it or to indicate that
certain behaviour, like that of bankers, is unacceptable but then continue to merrily
accept it and do nothing to stop it.
Clegg and Cameron are wealthy individuals helped into office by the financial services
industry and will do all they can to minimise the impact on other wealthy individuals.
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Exodus20
5 March 2011 7:17PM
Has Mervyn King just said goodbye to a cushy city job in the future or is this a carefully
planned spin to soften the coming blows to millions, at zero cost to banks and the
politicians?
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RobertSnozers
5 March 2011 7:17PM
Has Merv grown a spine? What a surprise that the bankers don't like it much.
The countdown to Tory backbenchers calling for his head has begun.
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jereboam
5 March 2011 7:22PM
Banks are businesses, not charities.
Their only duty is to their shareholders, so they form a cartel with other like businesses
and then take the punters for all they can. What else do you expect? Haven't you been
on a train lately?
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felixheavier
5 March 2011 7:28PM
I personally welcome this belated reality check.
Perhaps Mervin isn't happy with the coalition he did so much to support.
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bob15
5 March 2011 7:29PM
Exodus20
or is this a carefully planned spin to soften the coming blows to millions, at
zero cost to banks and the politicians?
The tories are even failing to spin the no to AV campaign. Even the head of the bank of
england will know that if tax loopholes and the budget is changed tens of billions can be
used to reduce the cuts and help the UK.
The no to AV campaign is being run by someone who used to be at the tax payers
alliance.
They are claiming there is a £130 million cost for new machines when it has been stated
over and over again the UK is not buying them.
They are also claiming the vote itself will cost £80 million which is an insult to all Scottish
voters and other voters as they are trying to claim the cost of holding these votes is £0
and that these votes are not held every few years at a cost to the country which is
always paid.
The fact the tories are trying to insult voters is enough reason to vote yes to
AV. It is also better because it will mean if there was another election with
the last set of results it could have given a lib dem and labour coaltion
without GB which is a good enough reason to say yes to AV.
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