"worst crisis since the war" set against Brown reported as
"UK 'overcoming' recession, says Gordon Brown. The Prime Minister's
comments mark an increasing bullishness from the Government over the
state of the economy."
Then separately of Darling it is said "The Chancellor will put job
creation and business investment at the centre of this week's Budget
as he strives to pull the economy out of recession."
Then there's "Chancellor Alistair Darling is expected to announce
some £15bn of spending cuts over the next few years when he delivers
his Budget statement." - BBC"
AND --"Former Labour leader, however, Neil Kinnock calls for a
funding boost for the "defining" war on child poverty - Guardian"
And then two items are headlined in Conservative Home - - -
"Mandelson signals return of industrial policy... with a green tinge
Lord Mandelson's new interventionism will "lead to hundreds of
millions of pounds of taxpayers' money [We're BROKE! Hasn't he
noticed ? Probably not on what he gets from us AND the EU. He
doesn't care about the future - he has no family -cs] being used to
fund the expansion of "green" industry. Projects funded could include
wind, wave and nuclear power, and electric and hybrid cars. Digital
communications, pharmaceuticals, life sciences, aerospace, business
services and electronics may also be in line for such "green"
funding. As well as providing direct aid, all government departments
will shape tax and regulatory policies to help these firms." -
Interviewed in The Independent
Tories announce £600m plan for British science and engineering
"in science and technology, encourage thousands of youngsters into
further education and support apprentices. The money would be paid
for through cuts in public spending elsewhere in Whitehall, Mr
Osborne said." - FT
It's all very well to soar off to Cloud 9 on a nice spring day but a
dose of realism would be better for the future of all of us. All
these people are competing to see who can spend the most of the money
we've run out of. Mandelson above is clearly off his rocker but
with him you can see that socialism, with Big Brother knowing best,
is up and running again.
I think and most intelligent commentators are of this opinion that
our situation is dire and likely to get worse. Unemployment is going
up and the recession is getting nastier. If we are to remain a
major trading nation we have to retain the confidence of the world.
THAT's what's at stake.
I will give some examples of realism today but for THIS posting I
confine myself to one by Roger Bootle because he says it all and
doesn't mince words.
The others will follow later but if I wait till I have finished this
important summary will not reach you early enough.
xxxxxxxxxx cs
=============================
TELEGRAPH 20.4.09
1. Just sketch out the route ahead, Mr Darling, that will be scary
enough
It is only five months since poor Alistair Darling had to stand at
the despatch box and announce those dreadful borrowing figures in his
Pre-Budget Report (PBR). He must now announce numbers which would
surely have been beyond his imagination then - and still we won't be
sure that this is the worst of it.
By Roger Bootle
Beneath the dour Scottish calmness of the Chancellor, the Treasury is
in a flat panic about the fiscal position. If the next five months
see a deterioration equal to that which has happened since the PBR
then we will be staring at a catastrophe.
The Chancellor will have no choice but to concede that the economic
outlook has deteriorated sharply. In the PBR, he forecast real GDP to
fall by about 1pc this year. To most observers at the time that
seemed dire enough. But the least he can get away with now is
admitting that the economy will contract by between 3pc and 3.5pc. I
think the fall will be more like 4pc.Meanwhile, he optimistically
expected the economy to grow by between 1.5pc and 2pc next year.
Admittedly, in its February Inflation Report, the Bank of England
forecast growth of around 1.2pc. But the truth of the matter, as you
will surely have grasped, is that no one has a clue. For what it is
worth, the consensus forecast is for growth of only 0.3pc, while I am
pencilling in another contraction of 1pc. Even if the Chancellor
stays on the optimistic side of the fence, he will probably still
have to nudge down his growth forecast to only 1pc to 1.5pc.
According to the Treasury, every 1pc fall in nominal GDP increases
annual borrowing by around £10bn. Using this rule of thumb, by next
year the deterioration in the economic outlook since the PBR is
likely to raise borrowing by around £40bn per annum.
However, public borrowing has deteriorated more sharply than the
weakness of GDP on its own would indicate. This suggests some sort of
structural deterioration. One feature of the recession has been the
slump in housing market activity, which has dented tax revenues such
as stamp duty. Meanwhile, the financial crisis has severely hit
bonuses in the City, on which higher rate income tax is generally
paid, and also sharply reduced receipts of corporation tax. This
structural deterioration could easily add another £40bn per annum to
borrowing.
I suspect that annual borrowing will increase to £200bn this year,
rising to £230bn next year. This would be some 16pc of GDP, far and
away the largest peacetime deficit in our history, and one of the
largest anywhere at any time.
The Chancellor won't announce such a large figure, in part because of
his greater optimism about the economy. But I still think that he
will announce borrowing of around £175bn this year - a far cry from
the PBR forecast of £118bn.
The effect of all this extra borrowing will be to push Mr Darling's
projection for the level of public sector net debt up to over 70pc of
GDP by the end of 2012/13, compared to the 57pc forecast in the PBR.
In reality, I suspect, that the out-turn will be more like 100pc -
and rising. Remember that the supposedly magic number that the
blessed Gordon insisted that public debt would stay below was 40pc.
And, by the way, these gargantuan numbers still exclude a host of
potential banking liabilities, PFI liabilities and unfunded public
sector pensions.
Given all this, the idea that the Chancellor will be standing there
and announcing the odd few quid on or off this or that seems utterly
bizarre. But he will.
What might he do? I am sure that there will be a flurry of measures.
I am equally sure that they will not add up to a ha'penny chew. There
may well be the occasional Treasury trick, such as bringing forward
some already planned public sector capital spending. The advantage of
this is that it doesn't raise the long-term path of borrowing.
Some tax changes are also likely. He could extend the temporary
reduction in VAT to 15pc for another year, costing about £12bn. But
this could be counter-productive, since it would postpone any surge
in spending that would happen ahead of the reversion to the higher
tax rate.
He may well target groups of people who are suffering most for a bit
of Treasury largesse, or should I say minimesse. The truth of the
matter is that what he does will be all about gestures and political
posturing.
Press attention has focused on the savers and pensioners who are
suffering from low savings rates. The Tories have proposed abolishing
the basic rate of income tax on saving, costing just £300m. This
seems both fair and long overdue, but will the Government really want
to encourage people to save at the moment? He could also give more
help for the unemployed. One suggestion is that the Government would
pay a wage subsidy for employees moved to shorter hours.
Looking beyond this year, the world and his wife expects taxes to
rise, and he could start the process now. He will be loath to
implement tax rises in the teeth of the recession - but he may be
forced to announce them now, for implementation later. One
possibility is not only to reverse the temporary VAT cut, but then to
increase VAT above its previous rate. Increasing it to 20pc would
raise about £12bn per annum. Or he could focus his attention on
higher rate taxpayers again.
In a budget when there is so little that can plausibly be done, there
is much that can and should plausibly be said. The real contribution
that Darling could make to this country's recovery is to sketch out
for all of us how we can get out of this mess. And we can. Believe it
or not, we have been in worse messes before. But the word is
'sketch'. Forget long-term forecasts. We have come to such a pretty
pass that in current circumstances, such forecasts emanating from the
UK Treasury would be about as convincing as a schedule of Lenin's
plans for the socialist millennium.
The trouble is that a realistic sketch would involve either such
stringency on Government spending or such hair-shirt policies on
taxes, or both, that his boss next door surely would not stomach it.
Instead, as the Chancellor stands up on Wednesday, we are likely to
get another episode of the usual Westminster pantomime. "Behind you!"
we should all shout. The figure who will be behind him then has been
behind it -all.
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