A shameless Budget

PayDirt

Chancellor Darling on the Today R4 this morning: I’m looking at the problem we have just now, anyone who thinks of what future Budgets might be, for example in 2013 is just plain daft. How come these Socialists don’t like being accused of short-termism when they come out with statements like these?

Dungeekin

I was watching Sky News this morning, and on-screen there was a 'debt-counter', ticking at a phenomenal rate as it counted spiralling Goonvernment debt and borrowing numbers.

For those who weren't able to mentally calculate the speed at which our debt is rising, Eamonn Holmes helpfully pointed out that it's rising at £300,000 per MINUTE. Which got me thinking....

Just imagine that you're watching this Government imploding,
And wasting eighteen million pounds an hour,
Debt rising at five thousand pounds a second, so it's reckoned,
As Gordon tries and fails to stay in power,
The debt for you and me, and everyone that you can see
Goes up at seven hundred pounds a day,
And it makes you really think, at eighteen million pounds an hour
Just how much cash New Labour's thrown away!

And just to bail the banks out cost two hundred billion pounds,
Our money thrown and wasted far and wide,
And Brown and Darling both must be spectacularly thick,
If they believe the voters can't see how they've lied,
Six billion pounds of tax on all high earners ain't the point,
When you borrow half a trillion in three years,
If we don't stop all the spending of billions and billions,
Then our fiscal situation just gets worse!

The National Debt itself keeps on expanding and expanding,
To levels that scare most economists,
As high as it can go - two trillion pounds you know,
Three hundred grand a minute, New Labour really took the piss,
So remember when your savings look unsafe and insecure,
That Labour taxed us all for all we're worth,
And pray they'll be some sense on the next Tory Budget Day,
There's been bugger all from this bunch of berks!

Forlornehope

The logic of this budget is that Labour has decided that the next election is lost. The strategy seems to be to return to the old core vote in order to prevent a complete meltdown. It might work, but then again it might not. Things will only get worse from now on in, so what price an early election?

Michael Booth

It is hard to put into words how angry I feel about the budget and what has been done to this country. The government have surely forfeited whatever trust was put in them by the hopeful voters of '97 - it is a great betrayal on every level. To say they are unfit for high office doesn't even come close. In every other walk of life, ineptitude on this scale would result in criminal prosecution: I believe the same principle should apply to every member of this government, both personally and collectively. I also think there should be some constitutional mechanism which would allow the citizens of this country to trigger a General Election - a power which should be taken away from the Prime Minister at the very least. Eastern Europe had its Velvet Revolutions - time for ours do you not think?

Forlornehope

Willem Buiter, writing in the FT seems to sum up the position rather well:

http://blogs.ft.com/maverecon/2009/04/darling-is-doing-his-best-to-clean-up-browns-mess/#more-1440

Short the UK

Allister I have caught you on CNBC Europe and watched as you consistently called the Crash incorrectly. I now fast forward on SKY+ when you are on Europe Tonight.

I think you are deluded if you expect this will be a W or a U.

An L with saw toothed spikes is the cold hard reality.

You are a permabull.

Good fortune.

TrevorsDen

The final comment is correct - this is a pre election spending binge. Brazen in its conception. Media that they fail to grasp this.

Greater pain for Britain, no matter who the wins the next election, can only be save if there is a strike by buyers of gilts.

C Powell

I wonder how many of those public sector managers on £100K or more will enjoy paying a 61.5% tax rate.

Tom Pride

We had our revolution. Mr Brown plotted the downfall of an elected Prime Minister, forced his resignation using a cabal of poisonous conspirators while destroying serious potential competitors for the leadership of the Labour Party and buying off the outsiders so that he took over, in true totalitarian style, without even an internal Labour Party election. He then broke Manifesto Promises and has now jettisoned the New Labour political philosophy on which his party was elected and substituted a old Labour agenda from the 1960 / 70s which the electorate were assured had been discarded for ever.

Alfred T Mahan

I'm glad you've included employee's NI contributions in your assessment of the real tax rate above £150k, but how about including employer's as well? That's a further 12.8% which is exactly the same except notionally it falls on one party to a contract of employment rather than the other.

So it actually costs £112.80 to put an extra £49 in an employee's pocket, which I make a marginal rate of 56.6%.

Since the fiction of NI being a separate fund was abandoned years ago, the first thing any serious tax-cutting party should do is to merge it with Income Tax. Not only would it be simpler to administer but the true tax rate would be obvious.

Frank O'Connell

I am a pensioner and was alarmesd what darling said in his budget speech with help regarding the pensioners.''If the RPI index falls below zero the old age pension will rise by 2.5%''
That has been the normal procedure for years.
He is giving us nothing, another deception.

Michael Taylor

I'm with Michael Booth. They're vampires - wicked evil bloodsuckers who disgrace their country, their office and even their party.

Britain will recover. Labour never will.

Elliejoon

'Short The UK is misinformed.
Allister is not a permabull. He was the voice of this impending doomsday during the heady noughties when it was not fashionable to say so. He would analyse the ONS numbers that no one else could be bothered to decipher and prove week after week how much Gordon Brown was inflating public spending and adjusting the stats to hide it. Allister please collate your articles from the Business during the noughties and turn them into a book destroying the reckless red thief that you always saw in Gordon Brown.

Moraymint

What was that Labour Party pre-election refrain again? Oh yes, "Things can only get better ...". Er?

procharity

Two facts:

-- The higher tax rate will equate to 56%, not 61.5%. And Britain will only have the highest top rate tax of any large, Western economy if we ignore Italy (admittedly always tempting) and even then Canada, France and the US run us very close.

-- Meanwhile, lower income pensioners will win out from the £50-100 increase in winter fuel allowance and the increase in the ISA allowance to £10,200. And when jobs are being lost and wages cut all round, a minimum 2.5% pension increase is not to be sneered at.

And two opinions to throw to the wolves:

-- It is absolutely fine to take a bit more tax on the top if we need to the money for the pension increase or to avoid cutting the education or NHS budgets. Three and a half per cent of our GDP has gone on bailing out the banks. That’s where the real horror lies. It’s perfectly reasonable to expect those higher earners who did so well financially for a decade under this government (you know, the one they now hate), and who then mucked up so spectacularly, to give a bit more back.

-- The recession is not all the government’s fault and even less so the Chancellor’s.

donald fraser

Unfortunately for policy-shy Conservatives, this 2009 budget is relatively prudent given the circumstances. So will a significant run on the pound ever occur? Pound Sterling has survived up to now outside of the Euro. However it has been nuclear defence procurement policy (Trident) that secured for us a military capability, as a small island, to punch far above our economic weight at the diplomatic tables.

To continue the price Britain must probably now pay is the abandonment of Pound Sterling and the adoption of the Euro as our currency. Why? Whatever the temperature of personal friendships between the leaders of the USA and UK, military strategists on both sides are likely to resist any major strategic divergence from current nuclear defence alliances. So the question arises, no matter the depths of the UK economic crisis, what is the ability of the UK to pay for new nuclear defence procurement policy? America will require an answer soon.

As the American economy is predicted to recover before the UK’s, it may be unacceptable for them to secure Pound Sterling’s future as part of the deal. The costs of upgrading our nuclear deterrent has been hauled over the coals several times under this Labour government and no decision made. Economic events may have made this decision for us.

However as Vince Cable suggests this budget it is mainly calculated by assuming some future 3.5% growth and forged backwards from it. So what is fort Britannica holding out for? We are waiting for the US cavalry to arrive in the form of an American economic recovery. More so than any other nation, except Eastern Europe and those nations dependent upon our expenditure such as Spain.

So the “critical” run on Sterling is likely to happen as soon as “recovered America” exists and there is less determination to use global monetary intervention to prevent it. What price for Fort Britannica’s future deliverance? Assuming the American recovery is not significantly delayed, the UK budget of 2010 will probably include expenditure for nuclear defence procurement. That will keep alive our place at the table of the nuclear elite for many decades to come and provide some iron-clad security against wholesale annihilation under any type of future adverse condition. Very regrettably, the price paid is likely to be the closing of the curtains forever on Sterling and we will adopt the Euro because America will insist upon as part of the defence deal.

Dorothy Wilson

"The recession is not all the government’s fault and even less so the Chancellor’s."

But the vast majority of it is - at least this government's. What we are now experiencing is the result of the trade off Brown made to allow the City to rip in order to provide the tax to pay for the money he pumped into the public services. It was a Faustian pack between the worst excesses of capitalism and the worst excesses of socialism.

Now, as in the Dorian Grey version of the story, the concealing skin has fallen off and we are seeing the corpse in all its horror.

Dorothy Wilso

I've just noticed Donald Fraser's post about the euro. Get real!

He should read the German press, specifically Der Spiegel. There he will find articles setting out the problems within the eurozone. In at least one of those there has recently been a discussion on the growing possibility of a need to bail out some of the countries using the euro if the single currency is to survive. The article pointed out that if that happened Germany would have to bear one fourth of the total required.

If we were in the eurozone we would have to take our share too - and it would be an enormous figure. Don't you think we have enough on our plate saving our own economy without having to bail out other countries'?

Gavin

The logic against a 50% tax rate also applies to the 'higher' rate of 40%. The Conservatives must move bodly. It is time to scrap the expensive and complex Tax Credits and unneccessary Child Benefit (relieving us of '000's of civil servants in the process) and move towards a wealth creation rewarding (and wealth creating) single tax rate.

Phil Dwyer

"this disgusting rekindling of the politics of envy will do immense damage to our prosperity and culture, triggering an outflow of capital and talent". Would that be the same 'talent' that has helped create the current economic prosperity we're all enjoying?

donald fraser

Thank you Dorothy for highlighting the potential burden that the German’s face. I visited Germany for the first time since the reunification only last summer (2008). I was astounded by how near completion the reconstruction of East Berlin is. Is it not now a time for Germans to power-up their manufacturing base as it shone in the 1980s? Germany’s focus upon reconstruction has created a temporary anomaly which allowed Chinese micro-electronics to gain a remarkable lead despite quality issues. Might British know-how, couple with Germanic attention to detail fill the hi-tech manufacturing trade gap with China? Europe’s balance of trade in manufactured goods would improve if Germany’s preferred hi-tech partner were the UK rather than France given the history of mass manufacturing. Might joining the Euro kick-start an Anglo-German manufacturing renaissance?

The argument to stay out of the Euro in favour of fiscal independency is one I supported until yesterday. The unique nature of this banking collapse in my view means this argument is lost. We are simply holed to deep to survive via this route, alas! However I still how advocate we support the withdrawal of the PIGS (Portugal, Italy, Greece and Spain) from the Euro. Their economies would benefit from a new fiscal independency. The sun-seeking tourism they offer is highly price elastic and can stimulate national economies more effectively because of the quintessential nature of demand (souvenirs, food and drink) it produces.

What you do not contest in your reply is the main thrust of my argument. In 2007 Tony Blair won a parliamentary vote to upgrade Trident in principle. Although the estimated costs are vague, between £25bn and £75bn, prudency would dictate that a figure of £100bn is budgeted to call upon if necessary. It is the enormity of the cost (and the political complexity of the decision) that leads me to suggest it may be the deal-breaker as regards membership of the Euro. The choice may be false. However given the choice of staying outside the Euro or maintaining a nuclear capability, which would you prefer? I believe strongly that the UK should not countenance severing a life-saving military tie with the United States, whatever the economic pressure, when a new and untested president is at the helm with no evidence of special friendship towards our island.

Michael Booth

Agree with Gavin: Tax Credits and unnecessary Child Benefit has to go. So do the unelected, unrepresentative Regional Assemblies/Councils set up by this government. So do most (if not all) of the quangos... sorry, 'Non-Government Agencies' that have proliferated. So does immediate welfare handouts to people arriving in this country who have made no contribution whatsoever to tax. So does our predeliction for getting involved in foreign 'adventures' which we can ill afford (we can't afford to equip our troops properly in any case). Time to get a grip.

Dorothy Wilson

To Donald Fraser

I simply do not think it is an either/or choice.

For one thing you are assuming that the euro will survive. I wouldn't bet on it. Ireland, Italy, Spain, Greece and Portugal are all in deep trouble. Several of those were allowed to join with the fact that they didn't actually meet the criteria being hidden under the carpet. Now those chickens are coming home to roost. True, I've seen an article in the German press arguing that the EU is over-extended but quite how you would kick the the so-called PIGS out of the euro without causing its collapse and the collapse of the EU I cannot imagine.

Also, Austria's banks are grossly over-extended in Eastern Europe and the Balkans. We are only at the beginning of the troubles in the eurozone.

In fact, the Germans could well find they are hoist by their own petard. They pressed for the euro to secure its export markets. Over the next few years they may well find themselves paying an unexpected price. Meanwhile, their economy is, according to the IMF, set to decline by 5.6% this year.

As for the UK joining the Euro and kick-starting an Anglo-German manufacturing renaissance, I'm sorry but you are living in cloud-cuckoo land. I remember being in a meeting in Northern Germany when a leader of one of their industrial sectors said: "We aren't free traders like the English. We believe in protecting our industries". The origins of the EU are based on a trade off between German industry and French agriculture. Not much has changed.

James

"Would that be the same 'talent' that has helped create the current economic prosperity we're all enjoying?"

You think everyone earning over £150,000 is a banker?

donald fraser

To Dorothy Wilson

First I will answer your point on the PIGS. Although it spoils the acronym, I suggest only Portugal, Greece and Spain best candidates for withdrawal from the monetary union. Traditionally the cheap places to holiday with plenty of sun and cheap alcohol. Also I’m not suggesting their withdrawal from Europe but only that they print and manage their own currencies as Britain currently does. One avenue worth exploring is the actual practicality of the economics behind designing and printing their new currencies. Might the Royal Mint offer to lend a hand, to lessen the start-up costs involved and the bureaucratic overhead to these 3 countries? We would profit from it. If we were in the process of joining the Euro ourselves at the same time, might it not be a cheap solution if we were to use their Euros as they were taken out of circulation? As the situation normalised, each country would return to print their own but a temporary paper swap would control costs at a critical introductory phase. The swap might be extended to some of the point-of-sale hardware (such as vending machines) but that would be best done by government facilitating a trade in used equipment by profit-maximising firms. I would enjoy my trips to Spain more with a peseta in my hand purely on a semantic level. I don’t think it would compromise Spain’s commitment to Europe.

As regards the financial crisis in Eastern Europe, who are we kidding to think 50 years of Soviet style planning can be made over by a mass migration of East European workers to the West? One of the reason British workers became so indebted is that the credit expansion was covering up a significant fall in their incomes. Since the 2004 enlargement bonus and overtime payments obviously fell because there was an oversupply of labour. While that was good for all those awarding contracts, from your simple patio extension to the grand shopping mall, it has had a serious deflationary effect. It is one reason that demand-led Keynesian economics has something important to contribute on this subject. Yes, East European workers sending money home have helped rebuild their economies. The deflationary effect was not realised because British workers were temporarily able to borrow from 2004 onwards. My preferred solution is a Marshall Plan for Eastern Europe. This idea was floated immediately following the end of the Cold War but not adopted. I believe now is the time. However I would also suggest that it is the time to introduce quotas on the number of East Europeans into Western Europe as UKIP suggests. It would only be a temporary measure as the Marshall Plan is put into effect over the next 5 years. East Europeans returning home to work on infrastructural projects funded by the plan would create a new labour shortage in Western Europe. This effect would be desired since higher wages, bonus payments and overtime would inflate West European economies and pump-prime local economies.

I believe your last paragraph is the most interesting and the crux to the matter. You report a German colleague saying "We aren't free traders like the English. We believe in protecting our industries". I would suggest the historical evidence prior to World War I, the industrialisation period, does not support this argument. The period of the economic miracle in Western Germany up to the end of the Cold War, the justification behind proposing a new Marshall plan, also contradicts it. I believe your perception is really only a direct consequence of the enthusiasm with which the French have engaged politically with a new unified Germany. Your reported statement makes perfect sense, and is backed up by the history of French industrialisation and the Saint-Simonianism movement, but only when spoken by a Frenchmen about France. My greatest concern is that by allowing the entrepreneurial spirit of the Germans to bend towards the French way of doing things we may be laying the seeds for future political reactionaries in a unified Germany with too many unemployed and economically frustrated youths.

BOB

As stated before - a long term political move. The international china/credit born boom of which the UK was just one of many beneficiaries (i.e. contrary to government claims that we experienced some kind of unique growth due to fiscal/other interactions by the government) is over and in its wake lies an uncombatable recession and a future of price inflation as chinese production costs race to meet those of the west. Labour policy therefore is, realising that this is unsurmountable and that the next election is lost anyway - to implement a public spending boom which will obviously need to be compensated for by the conservatives when they take office. As a result, the tories will be forced to implement large cuts in an attempt to bring public accounts back to earth making them unpopular with the electorate and leaving an opportunity for labour to return to power in 5-10 years time via a promotional campaign highlighting labour spending and tory cut backs. The electorate, having the memory of goldfish will be duped by this allowing labour back in for another spending spree on the back of tory 'prudence' (I don't like saying this as it implies the tories are actually capable custodians of public finance as opposed to merely being 'the best of a bad lot' as they really are).