The morning after the budget is always a moment of reckoning. For George Osborne it was when things usually began to unwind, badly. Do you remain the pasty tax? Philip Hammond also had such moments. Trying to increase national insurance on the self employed did not go well for him. So what of Risihi Sunak?
I have an overwhelming feeling of disappointment in Sunak's supposed budget of a lifetime. It was anything but that. This was a budget bereft of ideas.
First on tax, he did almost nothing. He is simply letting inflationary stealth increase taxes over time by not increasing allowances. This has been done before, which is going to be a recurring theme of all that follows. It's never been popular. It is regressive. We needed progressive tax change. We are not getting it.
The increase in corporation tax is radical. So radical that the two year delay seems very likely to see it abandoned in the meantime. That's my prediction.
And for now there is the so-called ‘super deduction'. It's not been tried before. It was the only innovation in the budget. It is bound to increase investment, a bit. But will it really cost £25bn? I very much doubt it because business simply has not got the money to borrow to invest. Nor has it the willing either. Sunak may want a Covid bounce. Business is going to find it much harder to believe it is going to happen. And remember, 100% deductions were tried before. They did not deliver much of a bounce then. Nor will this new version, which smacks of desperation.
Will the National Investment Bank work? A bit, of course. But it's not new. We had one before and it was under-capitalised, was too small to make a difference, and was then sold. This one is also heavily under-capitalised and too small to make a difference. I suspect it will also be sold because of its lack of ambition in due course.
We had freeports before too. And they too did not work. Which is why the Tories under David Cameron abandoned them. All they delivered were giant sheds in places people did not want them where people did not want to work and where the absence of ideas on what to do with them was staggering. Supply side reform in late financial capitalism does not work because all late financial capitalism wants to do is financial engineering and not actual engineering. These freeports will deliver quite lot of sleaze, and they will relocate some jobs, but will they unlock the country, as claimed? Not a chance. In a few years they will die a quiet death, as happened before.
On green issues, hydrogen appears to be it. Good luck with that. Maybe it is. But tying it to freeports seems certain to taint it.
And to describe the enthusiasm for a green bond as underwhelming is to be kind to it. Once the joke at Labour's expense had been made this one will be left to be quietly forgotten when the actual potential is enormous.
Presuming that the underpinning assumption of this budget holds true, which is that the coronaviruses that now exist in many forms have all signed up to Johnson's roadmap (and I note reports of rising cases in parts of the country this morning) the budget might not need immediate revision unlike all Sunak's previous attempts, by which I mean complete replacement within three months. Personally, I think that requirement more likely than not. But presuming it does survive, what to think of it?
This was an uninspired budget from a chancellor who seemed almost entirely out of ideas.
The tax changes required to tackle inequality and release demand did not happen.
The tax bung to big business was untargeted and likely misdirected.
The green aspirations were very weak.
The National Investment Bank is a John McDonnell idea that I have been promoting since 2008. It is being massively underdone.
And there was nothing for state services.
Overall, this was a chancellor standing back and saying in despair ‘what can I do?' The answer, of course, was ‘a great deal'.
But he did not do it. There was no strategy for the state, and there was no strategy for state intervention.
There was dishonesty on debt, which is not rising as he claims.
There was dishonesty on tax increases, which are happening, despite his claims.
The environment was ignored.
Eight freeports do nothing for jobs in every constituency, which is what are needed.
The extended Covid wind down shows he fears growing unemployment. The withdrawal of universal credit support, timed for when that unemployment will hit, shows he neither cares or has a plan for what to do. He is indifferent to those in need.
If this was an opportunity it was wasted. We will pay a very high price for that.
But also note the bigger issue. Financial capitalism is out of ideas. So too are its political representatives. Something has to change. We cannot continue like this.
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Thanks for your ongoing analysis
Sunak is doing his level best to avoid reality on behalf of the rich. In reality he is intellectually and morally bankrupt. He can’t point to any UK law that stops the government creating currency from nowhere as the Bank of England told us six years ago private sector banks can. If there was such a law the government bailout of the private sector beginning in 2008 (GFC) and 2020 (Covid pandemic) wouldn’t be possible. Sunak’s evasion of reality has led to the enormous pretence yesterday his budget wasn’t deflationary!
https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/money-creation-in-the-modern-economy
The high price we will pay according to Timothy Snyder is we’ll get more ‘eternity politics’ as a result of this lack of ideas which is feature of ‘inevitability politics’ that dominates at the moment.
Our country will become more fascist like as politicians throw us off the scent and look for new foes at home (immigrants, teachers etc.,) or abroad (the EU) and paint the country as a victim of these – not the Government’s stupidity.
More and more people will give up hope and wear their suffering as a badge of pride and applaud as more and more people are dragged down to join them in some perverse equality of inequality.
Reading Snyder’s book ‘The Road to Unfreedom’ , I was struck by the fact that even though it was written in 2018, it describes the country that I am living in now PERFECTLY.
I don’t think I’m exaggerating either.
Phew! Bad times…………………………..
“Something has to change. We cannot continue like this.”
But we will.
I think not
If David Cameron, George Osborne, Theresa May, Philip Hammond, Boris Johnson and Rishi Sunak had been right regarding all the guff about the public finances and austerity, and yet failing to eliminate the deficit or reducing the debt – as they completely failed to do; then we would now be prostrate, bust and utterly ruined beyond all repair. We aren’t.
Here we are in the middle of a catastrophic pandemic, still able to move forward (and they can even continue to peddle the same old guff) only BECAUSE they were completely and utterly wrong. It doesn’t cut-through to public opinion. The public finances have proved far more robust than they claim, or want anyone ever to believe, or find out. They were totally wrong, but that doesn’t count in Britain. What matters is guff. All they need is for people to believe the guff and go on believing, and even accept all the horrible consequences of believing it, thinking that there is nothing else (and they still do!); and I suspect the Conservatives can indeed go on, and on.
“Furious public can’t believe they’ll vote Tory again in another 3 years”
Daily Mash.
First past the post pretty much assures it.
Although you and others try to point out that more taxation is unnecessary, it was the case that the public in general were more accepting than they usually are of a potential tax increase due to the obvious expenditure on Covid. It was the perfect opportunity to tweak the system to make it fairer and more progressive – and it has been missed.
Similarly the value to the country of the NHS and public services has rarely been more evident. It could have been an opportunity to create a framework of sound financing of them for the future – but nothing on that, we will continue leaving them under-funded and depending on sticky plaster solutions at times of need.
True
@ Jonathan
“Although you and others try to point out that more taxation is unnecessary, it was the case that the public in general were more accepting than they usually are of a potential tax increase due to the obvious expenditure on Covid.”
The general public on the whole are ignorant reality evaders. The country’s in a deflationary situation because of Covid and to some extent Brexit yet raising taxes sucks out demand!
It was deeply disappointing that there was nothing about a possible rail link between Scotland and Northern Ireland. Johnson has already proposed a tunnel and a bridge linking the two countries. Perhaps following the roaring success of the Johnson inspired Royal Docks-Greenwich cable car link in East London across the Thames, he is contemplating a high speed cable car system between Stranraer and Larne. The sight of uper sized gondolas capable of carrying HGVs whizzing across the seas between Scotland and Northern Ireland would show the world what this country is capable of under his leadership, and establish him indisputably as a man of vision in the history books.
🙂
For the most part the budget has been favourably received. We will know better in opinion polls in the forthcoming weeks.
The wrecking ball no matter where you sit on the political spectrum is inflation and inflationary expectations. Both are on the rise… I know central banks have enjoyed near total control of bond markets over the past 10yrs thereby keeping interest rates low..to continue to control the term structure of interest rates through QE is akin to “throwing oil on the fire” as more liquidity is injected into an inflationary environment… once inflation becomes a problem then “throwing money“ at is as a solution is no longer viable. At this point we might have a recession we can’t easily counter or worse stagflation.
I know you think inflation is not a problem but many of those discounting ahead disagree. Let’s hope you are right.
And where is this inflationary pressure going to come from?
I am inclined to agree with Richard – I just don’t see where pricing power comes from.
Also, whilst there is a lot of chatter about inflation the data (St. Louis Fed) suggests that we are merely getting back to a level of inflation expectations consistent with historical levels and Fed goals. If they hit 3% I might rethink.
PS Not sure what the UK data says but I would argue that it is the US that matters.
I don’t see how there can be inflation when planned cuts in the public sector will still go ahead.
In other words, money is still be taken out of the economy as well as put in.
“On green issues, hydrogen appears to be it. Good luck with that. Maybe it is. But tying it to freeports seems certain to taint it.”
My take on the budget, H2 and off-shore wind is as follows. The Toryscum are making: £4.8m available to the “Holyhead Hydrogen Hub” which aims to provide H2 to refuel all those H2-powered trucks passing through the port. Oh hang on a sec the Ireland —Holyhead — through Uk to Calais route has seen a massive drop off in traffic because of……. new direct ferry route Ireland to France. Ah well its only £4.8m & the toryscum have spaffed far more to their “doners”.
In the case of off-shore manufacturing hubs — it raises the question manufacturing what? Vestas makes blades of the Isle of Wight. Steel for the towers comes from all over (EdF bought steel for a new off-shore farm in North Wales from…. Indonesia). Tower fabrication tends to take place in mainland Europe. Ditto the off-shore transformer stations (which use mostly non-UK sourced equipment). There is much talk about raising Uk content to 60%. This will never happen — there is no industrial base left (bravo toryscum) to do that. Given these realities one wonders what the gormless/stupid/corrupt Chancellor had been smoking when he came out with this tripe:
“Offshore wind is an innovative industry where the UK already has a global, competitive advantage”.
Most of the players at any level from making stuff through to owing & operating stuff are… non-UK. This reality leaves one wondering if the toryscum party benefit from “donations” from the sector? (I suspect not).
In terms of H2 production, the trajectory is firmly for electrolysers off-shore, and re-use of existing nat gas pipelines to carry H2 (the studies have already been done). So what a freeport brings to the equation is anybody’s guess.
From a UK perspective, we see the main role for electrolysers and H2 as embedded in distribution networks taking electricity from renewable systems and avoiding the need for extensive & expensive network reinforcement (it’s always expensive given it involves the UK’s own home-grown legal mafia — the electricity distribution network operators). Of course there was no money for this side of things probably due to a) no possibility of “donations”, b) shire-toryscum hate renewables — so why upset the electoral base more than you need to. Thus most developments for on-shore renewables and hydrogen will be on the Celtic fringe where poverty and desperation have led to an adjustment of mind sets.
I suspect this green H2 is just cover so they can allow fossil fuel companies to make it from natural gas instead.
They will argue it’s more energy efficient to produce that way, which is true, and then they won’t have to do any of the hard work of figuring how to make electrolytic H2 more efficiently, and develop a renewables based supply chain around that.
The bonus will be that the oil companies won’t have to turn the taps off any time soon and will be able to keep their existing control over energy resources with some as small tweaks to their production processes and business model. Of course, it’s also a great argument for fracking too!
H2 makes a lot of sense for heavy goods and aircraft, but it’s terribly energy inefficient to produce from water.
Later they will lobby to have no way of consumers knowing where the H2 came from, and there will have to be a campaign to correctly label green hydrogen, while we fight fossil fuel companies for another decade or two. Or you could call me a paranoid cynic!
Greens should argue strongly for green hydrogen from the start and reject any attempt to produce H2 other ways, lest we reopen the wounds of the fracking industry and other destructive ways to produce it.
In answer to your points:
One of the problems that the toryscum gov (& its doners the fossil mafia) faces is that events in Spain suggest that green-H2 can be produced more cheaply than H2 from nat-gas. HyDeal will deliver next year industrial quantities of green-H2 from a combo of PV+electrolysers at a price of Euro1.5/kg – a bit less than H2 from reformed nat gas. So at least in Spain, it’s game over for nat-gas-based H2. However, the story does not end there and the ambition of Spain is to become a supplier of green H2 to much of Europe. It’s well placed to do that because the LCOEs for PV are heading towards Euro10/MWh – wind on or off shore will struggle to compete with that price.
As for “H2 is terribly inefficient to produce from water” – it takes around 55kWh of elec to produce 1kg of H2 with an upper heating value of 40kWh. So the efficiency is around 73% -with 80% projected for 2025. Li-ion batteries have a round trip of circa 90 -92%. Furthermore, it is posisble to get trapped at looking at things only through the lens of “efficiency”. As morerenewables enter any power system so the surplus (i.e. mismatch between production and demand) increases. Batts cannot store that surplus, electrolysers can. If you want 80% renewables in an electricity system you need to produce 120% of demand – this is not an assertion, I have the numbers. What do you do with the 40% that you cannot consume? Put it into a large store – existing gas system plus salt caverns (UK has plenty).
“And where is this inflationary pressure going to come from?“
Well there are countless commentaries, research notes arguing it will and the US bond market is suggesting it will.. I don’t know, how would I? But I know it is a real possibility just with the weight of liquidity. I think this article is interesting and balanced.
https://www.nytimes.com/2021/01/16/upshot/inflation-rise.html
If you base your forecasts on an economics that never gets forecasts right I guess that’s what you get
“If you base your forecasts on an economics that never gets forecasts right I guess that’s what you get”
With respect the US bond market isn’t economics it is a collective weight of money from a wide range of investors..pension funds, charities, institutions, hedge funds and retail.
I can’t make a call on inflation and what happens will happen, I can’t change it..but my point is QE and money stimulus only problem solves when inflation is under control, when it isn’t it ends and may even reverse.
Or maybe they are led by people who think I oculi spending a bad thing as it creates inflation
It won’t because there is considerable excess resource to use in the US. But dogmatically they think otherwise and use their collective power to price bonds inappropriately.
By the time that their error is found the damage has been caused, and then they will claim that thy were right, even when wrong
“But dogmatically they think otherwise and use their collective power to price bonds inappropriately.”
Interesting comment. To call a disparate collection of institutions, retail, pension funds, charities, hedge funds etc as “they” implying they all think and behave the same.. I very much doubt they do. The only “they” in the bond market is the respective central bank. But as I say their influence will significantly wane in the face of inflationary risk.
There is a singularity in economic thinking
It’s called neoliberalism
Please don’t pretend otherwise
@ Jason
There’s a lot of deflationary pressure in this budget as we’ve come to expect from the intellectually and morally bankrupt Tories who understand diddly squat about how the country’s monetary system works or pretend they don’t. Before you get too frivolously sycophantic about this budget you should make the effort to identify the deflationary element.
Helen, As Clive alluded too the US matters more than the U.K. The same applies to China.
I am not sure I agree, at all
We have our own currency
So we have our own inflation rate
Unemployment is at 5.1% (an underestimate) rising and due to rise again just as Universal Credit is reduced by £1,000 a year. Where is the inflationary pressure there?
You were very good on the Jeremy Vine show.
Re CT increase – is it the case that the return is due 9 months after the accounting year end and payment due 9 months later ( not sure if I am correct on this) then it will be even longer than predicted before the tax increase has any effect ?
I don’t think so
The delay will be consistent across the period so that should not change things
Of course they are all happy, Mission Complete, by the first post BrexShit budget that most of the population has been put through 10 years of austerity hell to get to.
Just for one thing.
So here are hopefully short observations and questions, specifically for the GKH and Dodds to ask/answer – which they will not.
1. Does the Opposition accept the budget? Or does it object?
2. Do they accept the need for ‘Free Ports’ as the means of regeneration of deprived regions?
3. If yes , then why is the South East of England included?
England has 9 regions, the ones away from the South East are the ones in need.
The whole distortion of Wealth and Income in the land is because of the immense amount of economic activity, profits, high wages, property prices that have over the last 50 years accumulated in the SE. Forcing many to move there from all over the rest of the country to make a living/career.
So clearly the South East is not anywhere near a deprived region as most of the others. Is it?
Is it GKH/ Dodds? IS IT?
4. Even if you incredibly believe that the BRAND NEW portentously named (complete coincidence I’m sure) port London Gateway was built, so that it would be in need of special protections (you must be an avid collector of ‘bridges’ and Nigerian princes millions), as do all the , sob sob poor regions … Why do they have to be extended to a diameter of 50 Miles?
Surely all the raw materials brought in can be processed into good as gold exports free of taxes within a few miles of such a port? Easier to move people 20 miles than all these raw materials and finished goods clogging up 25 miles, surely?
What about these parts not within 25 miles of a super tax free port? Sheffield? Bradford? Derby? Etc. Do these ancient foundries and manufacturing places not get an equal piece of the pie? It all seems rather unfair and not thought through?
So GKH/Dodds why 25 miles? why not 5? Or even an absolute maximum of 10?
Why not start with just ONE in the North East of 5 miles for 5 years say, and see how it goes?
There certainly can’t be any need for any more, can there?
––––––-
If Labour accepts the Freeport’s, and accepts London Gateway and Tilbury, and accepts 25 miles – will people finally see the Long Planned extension of the City into a official Nation State that it has been engineering to do so for decades now?
It will be their new HK/ Singapore on Thames. With actual HKese.
And guess what? They may even sweeten the deal with a payment of a £Trillion to the ‘State’, you know, save us from ‘bankruptcy’.
I mean it.
Your piece on Jeremy Vine was excellent.
Re the CT increase is it the case that as the return is due 9 months after the relevant accounting year and payment later after that ? In which case the actual benefit to the Treasury will be even later than 2023 ?
As the delay is consistent it should not have an impact on the trend