What the borrowing numbers mean
Peter Hoskin 8:59am
A great article by Martin Wolf in today's FT, analysing what the upwards-revised borrowing figures in the PBR mean for the public finances. Here are his key observations:
"First, the Treasury’s view that the last cycle ended in 2006 seems quite ridiculous. The correct view is that the UK has been caught in an unsustainable supercycle, with a once-in-a-lifetime bubble in global finance and domestic housing. It is only now in the downswing. The cyclically adjusted fiscal deficit, properly measured, was far larger than believed for at least a decade. So fiscal policy should have been much tighter. If it had been, the UK would be in far better shape today.The point about Darling's growth figures has been taken up by much of the commentariat this week. The vast majority of them - along with most of the people I've spoken to - believe that the Chancellor's prognosis is far too optimistic. As we've said before, the Government may reap the political implications of that. But the financial burden - the accounts "drowning in red ink" - will be left for future taxpayers.Second, the UK cannot afford the spending it once hoped for. The government recognises this: current spending is forecast to grow at only 1.2 per cent in real terms from 2011-12 and net investment to fall by 0.9 per cent of GDP. As a result, spending is forecast to fall from 44.2 per cent of GDP next year to 41.5 per cent in 2013-14. Even so, tax shares must also rise: the PBR forecasts a rise of 2.4 percentage points between 2009-10 and 2013-14. Misery lies ahead for years.
Third, even so, the Treasury surely remains too optimistic: despite the scale of the shock to the world economy and the financial system, it assumes an annual peak to trough decline in GDP of a mere 1 per cent; an economic recovery in the second half of next year; and then a return to trend growth at 2¾ per cent a year, despite the need to shift output into capital-intensive, export-oriented manufactures. This is not plausible.
Finally, assume, instead, that GDP shrinks by 2 per cent in 2010 and 2011, before expanding by 1.75 per cent in 2012. It would then be 11 per cent lower in 2012 than forecast in the Budget. The fiscal accounts would be drowning in red ink."
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johnT
November 28th, 2008 9:24am Report this commentWhat do you propose Peter? Deep cuts into expenditure now? And wont that prolong the recession?
TPR
November 28th, 2008 9:48am Report this commentAbandon ship?
Prodicus
November 28th, 2008 9:54am Report this commentCut corporation tax for existing business to, oh, next to nothing and ACTUALLY nothing (and no rates either) for ten years for any manufacturing company prepared to come here and start up IF they also have large training programmes - and support those, too. And stuff the EU.
THX1138
November 28th, 2008 10:15am Report this commentWhat the borrowing numbers mean? Not Much according to Anatole Kaletsky In yesterdays Times
Well worth a read.
http://www.timesonline.co.uk/tol/comment/columnists/anatole_kaletsky/article5240418.ece
The Money quote on debt. (sorry)
"Hysterical claims that Britain is on the brink of “national bankruptcy”, or that the Government has “run out of money” or that the pound is going the way of the Icelandic krona may be a normal part of political banter, but they are absurd. Britain's public debt-to-GDP ratio, at around 40 per cent, is the lowest among the G7 advanced economies and if it were to rise to 57 per cent, as suggested by Treasury projections, this would not present a serious problem. Nor would it drive up interest rates and inflation, to judge by the experience of Japan, Italy, France and Germany, all of which have public debt ratios above 57 per cent.
He doesn't rally agree with Fraser does he.
Ian C
November 28th, 2008 10:23am Report this commentjohnT, financially cuts are the best option. Yes it will deepen the recession, but the recovery would mcome quicker as confidence re-building is more important than anything else. So politically only a new gov't can effect them. There can be no confidence at least until this gov't is history. But that could be before its gone if the Tories are smart.
The opportunity, economically and politically, is for the Tories to revive themselves by announcing radical re-incentivising of the tax and benefit system, so that the incentives are for all to seek work regardless of its nature. It iis ob to most what needs doing. It does need backing up with a tough immigration policy so that outsiders do not come here to undercut our low paid, especially those currently relying on benefits who could be working in the fields and hotels that foreigners are at present.
It is time for Cameron and Osborne to prepare to ditch their "don't frighten the natives" strategy and get radical.
The prospect of a new radical gov't coming will begin the restoration of confidence before we get rid of this abysmal lot who do not understand what the right 'incentives' look like, or the affect they would have.
Ian C
November 28th, 2008 10:58am Report this commentignore the peculiar sentence in second para! Thought it was deleted!
Michael McGowan
November 28th, 2008 11:04am Report this commentMartin Wolf's commentary is consistently head and shoulders above that of Anatole Kaletsky, whose many gaffes have been highlighted by Private Eye. And Martin can hardly be regarded as a stooge of the Conservative Party.
The Bellman
November 28th, 2008 11:24am Report this commentTHX: Kaletsky's been all over the place in the last few months. Guido (I think) did a good 'compare and contrast' a few days ago. He is a read in the wind.
Not all anaysts are so airily dismissive. I seem to recall reading somewhere (Forbes?) that US banks' liabilities are 20% of US GDP, whereas UK banks are 285%. That's not public debt, of course, but it's hardly healthy...
THX1138
November 28th, 2008 12:10pm Report this commentI missed that in the Eye. I saw him on a few Newsnight panels and thought him rather good, especially at explaining economics simply.
What is wrong with his statement about debt ratios apart from it doesn't fit with most Coffee Housers Brown/Darling bashing agendas?
James Hughes
November 28th, 2008 12:49pm Report this commentI run a £1 store.... At least someone's happy with the changes - at least for this year
jim
November 28th, 2008 1:03pm Report this commentIt means collapse. But it will happen in stages.
First will come the total collapse of the pound, probably after America goes.
Then confusion, as all the Dr. Panglosses' catch slowly up with the new reality.
Then chaos.
Then anger, unlike anything you have seen in your life time.
This was the greatest credit bubble in history, the ramifications can really only be guessed at, but it will be a mess.
Then a new world. Rebuilding industry, eco-technolgy, etc. But the youth have been very dumbed down, so it could be extremely bad. It will depend on the re-establishment of the law, and study of science. Sorry I can't be more cheerful.
Ian C
November 28th, 2008 2:34pm Report this commentWhen Kaletsky started mixing his columns with politics, he began to lose it. His last 3 have confirmed this - and I have keenly follwed him since the 1980's. Very disappointin as he can make complex (economic) subjects clearer than most.
THX1138
November 28th, 2008 5:27pm Report this commentGuys I understand that Kaletsky a well known and respected economic commentator has written something that doesn't fit your political narrative.
As a as a self confessed economic novice I thought his article made sense. Can someone please tell me what's wrong with his analysis?
JimBob
November 28th, 2008 8:17pm Report this commentTHX1138,
Kaletsky is not a 'respected commentator'. His articles are a list of jargon-ridden non-sequiturs and drivel and his predictions are invariably wrong.
chris
November 28th, 2008 9:49pm Report this commentMartin Wolf is one of the finest economic commentators. Balanced, thorough, yet relatively straightforward to follow. His use of simple language in analysis is most welcome.
THX1138
November 28th, 2008 10:19pm Report this commentJimBob All economists predictions are wrong - This From The Times Bio of Kaletsky
Anatole Kaletsky is an Associate Editor of The Times and one of the country’s leading commentators on economics
I know they would say that wouldn't they.
I'm really interested why Germany & Japan can have what most people agree are strong ecomonies with a public debt-to-GDP ratio of 57% but for us it's a disaster.
Your all playing the man not the ball. I ask again whats wrong with his analysis?
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