We will have what is claimed to be the last ever Spring budget this week. I have no idea whether that will be true or not. What I do know is I won't be here. Country-by-country reporting is taking me travelling this week: once I finish teaching tomorrow afternoon I go on a three country tour before returning on Friday. For the first time in years I will not be doing the Budget commentary on Radio 2.
But what to expect? And what to wish for? My wish remains the budget speech you'll find as chapter nine of The Joy of Tax. My expectation is very different. Although Philip Hammnd could be delivering a budget that could transform the UK for the better he won't be doing anything like that.
So why could he do it? Five reasons, at least. First, for the first time since 2001 UK government debt fell this year. It looks like the deficit will be £56 billion but since QE of £60 billion was used there has been a decline in UK government debt. I agree that the debt and deficit are not the same thing, but the reality is debt fell. There is then no need for austerity.
Second, the deficit was smaller than expected this year and smaller than the economy needed. Tax drains funds out of the economy. That's not by chance. That is its purpose. The government prints the money it needs to spend: it reclaims it through taxation. The spend stimulates demand. The tax reduces it. The net combination resulting in a fall in borrowing means that the economy was deflated by more than the government expected in the last year. The result is that we are, quite simply, worse offer as a result. And many know that. Those on frozen or denied benefits; those without a pay rise; those waiting for health or social care; children in growing classes; those in a justice system at breaking point: all of them know all about the government underspending in the last year. And the government is going to celebrate this rather then put it right by spending this money back into the economy where it is needed.
Third, there is the fact that the market remains desperate for government debt. There is a shortage of quality debt in the world. Financial markets are crying out for it. The interest rate is back into negative territory once inflation is taken into account. There is no cost to borrowing over thirty years as a result. Extraordinarily, people will pay the government to take their money off their hands and still the government is refusing it. That really is economic madness when there is so much that this economy needs done within it, starting with the urgent need for more social housing.
Fourth, we only avoided a downturn last summer because the Bank of England delivered a QE stimulus when the government would not act. It probably can't repeat that this year a) because it can't forever show the Chancellor to be incompetent and b) because the Fed intends to raise interest rates and it cannot be too far out of line with US policy and so the only way to keep things going is for the Chancellor to do the job instead. And he will need to do so: we know the economy is slowing already: it's a trend that is going to get worse as the impact of Brexit pound deflation feeds though into higher UK prices. I strongly suspect the Chancellor will not rise to the challenge.
And fifth? Yes, that is because of Brexit. As resources are sucked into unproductive and wholly negative activity to complete a task that is purely destructive for the economy then. Additional spend has to be incurred in other areas to compensate for the economic burden that Brexit is imposing. The Chacelllor supposedly has a £60 billion war chest for Brexit, but that's just to c0ver the costs, I suspect. That war chest ignores the real economic impact of what is happening as the economy suffers neglect under the burden of massive bureaucratic action to take us out of the EU. We need a stimulus to deal with that.
But what will be get? A few small giveaways and talk of the need for fiscal prudence and austerity as if the lessons of Brown and Osborne had never been learned.
One day this country may have a competent economic policy. But we won't be seeing it this week. All we'll get are Budget Day Blues and there'll be no rhyme or reason to them.
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“The country must live within its means” …. blah, blah, blah. More junk economics from a duplicitous, regressive government and promulgated by the neo-liberal MSM. We all deserve a lot better. Bons voyages!
Richard, you say:”The Chacelllor supposedly has a £60 billion war chest for Brexit, but that’s just to c0ver the costs, I suspect” Yes, and Monsieur Barnier has indicated the bill to be paid by the UK for withdrawal is c£50 billion plus. Will we pay that? We are hearing defiant words from HMG, but if we did pay that, there would not be much left of Hammond’s war chest. What else is the war chest supposed to be available for? Improving customs facilities at Dover and Harwich etc? Defending the pound ?
I wonder if any of those who voted BREXIT but who may now be subject to a delay from their local NHS have the slightest clue about what they have gone and done?
Hammond has said that the NHS will get no exta money whilst setting aside money for BREXIT. So, jingoism concerning Europe comes before the nation’s health.
It is not just Labour who are cowed by the received wisdom of too many of the public. The Tories are also wanting to make BREXIT work in order to benefit in 2020.
But tell me – what does it say about the British public? Will they stand to see a worsened NHS just to be free of the EU? If the Tories are right then I just don’t want to be here any more frankly.
Hi PSR
Which country would you recommend going to if the UK did carry on with its current political and economic direction? If you don’t want to be here where is better. Thanks.
Well it’s a good question Charles.
I know people who have moved to Canada and Australia and are doing very well – especially Canada. I’d also consider moving to France if I could. Germany would not be too bad either. I always fancied New Zealand when I was younger (although I hear that the reconstruction after the earthquakes seems to be taking for ever – a sign of neo-liberal economic thinking over there perhaps?). But each country has its own demons to deal with.
‘Trouble is are the elderly relatives. With adult social care in such a bad way I am supporting my partner in giving up work to look after her Mum who has developed dementia lately. The bonds that tie and all that.
So it looks as if I will be staying here albeit reluctantly. And one gets older (I’m 51 now) emigration gets harder. But I feel at odds with this country – something that has been growing in me for years. At least my children are into modern languages. I would not stop them from leaving.
The UK is not managed seriously for all; it is increasingly a playground for the rich and the rest of us are just fodder to be manipulated via our past: indeed we Brits are entombed in it – the endless replays of WW1 and WWII every year. Keep hate alive!
Never mind ‘Lest we forget’ more like ‘Lest we wake up in the present’. And those that rule over us just encourage us to fall out with each other so that we do not fall out with those that rule. And as a result change is thwarted.
But what my comment is really about therefore is how disappointed I am with my country. I could talk about how sick I am of how our rulers going a long with the USA and helping unaccountable wealth dominate economics. But my real disappointment is in my hinterland – the working class – who spurn collective means of change (unions for example) and are happy to be told who to hate by the Sun and Daily Mail on a daily basis and then to pick on those no better off than themselves. It’s pathetic.
As Vidal Gore said ‘Perpetual war for perpetual peace’ – so a significant number of people in this country are at war with each other (including immigrants) so that the rich can live in peace and get on with their lives unchallenged and without obligation to anyone but themselves.
This Charles is ‘modern Britain’.
I am also disappointed because deep down I love this country and the people. The humour, daily acts of kindness and friendship, the beauty of the geography itself – the true character of this country spoilt and pushed aside by establishment agendas.
Charles, I second everything PSR says, because I’m in a similar position myself. Elderly parents, who can only rely on me as my sibling lives in NZ, on the wrong side of 50, and feeling an ever increasing sense of disgust and contempt for our politics and economics.
Just as PSR says there are many great things about Britain which I see every time I go for country walks; beautiful countryside, pubs, a climate which isn’t freezing in winter or scorching in summer, a lack (so far) of violent crime. And of course, every country has its bad side as well as good.
But I loathe the ‘Britnat’ nonsense pushed by the Brexit charlatans, and I despise the guillibility of those in the electorate who are taken in by it, and allow themselves to be conned into voting out of the EU on the basis of it.
When is a budget not a budget? When it is a Treasury Budget.
The MSM are pushing this cliche – ” a war chest”. How easily attention is diverted from the reality.
Did those who voted for Brexit know that we would have to pay to leave?
This amount could cover the NHS deficit for five years.
The UK National Office for Statistics hold a lot of data. I just looked at the latest National Debt numbers to end 2016. It shows an uptick after the EU Brexit referendum on a par with the 2008 financial crisis. It may be too early to say its statistically significant or a trend. But given even the government admits borrowing will rise….. See my analysis here https://1drv.ms/i/s!AtzOdykyk0R9iaBpB6k6vaqzBLbVBw