Repetitive, maybe, but these quotes show the consensus growing for action now to keep the country afloat. The election is too far away and any new Chancellor needs a few days to find which bell to push and lever to pull. The idea that we have to wait until the recovery is established before acting, seems more and more like foolishness. The pain is coming anyway. The sooner the less!
Christina
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THE TIMES 20.11.09
Rising Government debt lifts tax-rise chances
Patrick Hosking, Financial Editor and Gráinne Gilmore, Economics Correspondent
Pressure for tax rises and public spending cuts intensified yesterday as it was disclosed that the Government was forced to borrow an extra £11.4 billion to pay its bills last month, the worst October figure since records began.
Tax receipts collapsed by £4.1 billion, compared with October last year, while spending was £4.5 billion greater as the recession depressed normal sources of tax, such as corporate profits and consumer spending, and as welfare payments surged. Total public sector net debt grew to £829.7 billion by October 31, equivalent to 59.2 per cent of total national output, the highest level since 1946. That compares with £695.1 billion and 48.6 per cent a year earlier.
The extra borrowing was almost double City expectations and led to fresh doubts that Alistair Darling, the Chancellor, could keep total borrowing this fiscal year to his target of £175 billion. Economists predict a total borrowing figure for the year of up to £220 billion.
The dismal snapshot of the public finances came as the Organisation for Economic Co-operation and Development (OECD) urged the Government to come up with a credible plan for cutting the massive public debt, and cut its growth forecast for the UK economy.
It said: “The consolidation announced by the Government means that fiscal policy will be a drag on the economy from 2010 onwards. Once recovery takes hold, further consolidation is imperative as public debt, which was relatively modest before the crisis, is reaching very high levels.”
The Conservatives seized on the figures and the OECD intervention to question the Government’s economic competence, saying borrowing was 88 times higher than a year ago. George Osborne, Shadow Chancellor, said: “Today is a defining moment in the debate about Britain’s debt — the moment when we see that Gordon Brown has not just lost control of the public finances but lost the economic argument about the debt crisis.”
Mr Brown, interviewed on ITV’s This Morning, sparked fresh speculation about tax rises, saying: “The Chancellor in the Pre-Budget Report [due on December 9] will make any announcements that are necessary.”
Increases in VAT, national insurance, capital gains tax, fuel duty and high-earners’ income tax have all been mooted as possible ways to bring the public finances closer to balance. Taxes will rise anyway on January 1 as VAT returns from a reduced rate of 15 per cent to 17.5 per cent and 1 per cent stamp duty becomes payable again on £125,000 to £175,000 house purchases.
Ministers accept that taxes will have to rise and public expenditure will have to be cut once the recovery takes hold, but fear immediate reform could endanger the fragile recovery. [They seem out on their own in this - almost everyone else is demanding urgent action -cs]
At the halfway point of the fiscal year, income and wealth tax receipts are down by £17.6 billion year-on-year, while VAT and other production tax receipts are down by £7.8 billion. Total current public expenditure is up by £18.7 billion over the same period. This fiscal year, public sector net borrowing has reached £86.9 billion, compared with £33.9 billion this time last year.
Analysts said the October figures were particularly disappointing as the month is usually a benign one, with strong corporation tax receipts often producing a net government surplus.
The OECD expects the UK economy to shrink by 4.7 per cent this year, worse than its forecast of a 4.3 per cent fall in June. It expects the country to emerge from recession in the final quarter of this year, and said that the economy would grow by 1.2 per cent next year, close to the Treasury’s forecast of 1.25 per cent.
However, its forecast of 2.2 per cent growth in 2011 falls well short of the Treasury forecast of 3.25-3.75 per cent and even further shy of the Bank of England’s rosy 4.1 per cent estimate.
The OECD added that although Bank moves to slash interest rates and pump money into the economy via quantitative easing had helped to “cushion the downturn”, the Bank would need to “normalise” rates in 2011.
The figures dented sentiment in the government bond market, with gilt futures slipping as investors questioned the appetite to buy the future bonds necessary to fuel public finances. Sterling fell slightly to $1.6606 and also weakened against the euro to 89.5p.
In recent months, the Bank has been a voracious buyer of gilts as part of its £200 billion quantitative easing (QE) programme. But there are concerns about demand for gilts once the Bank stops QE or puts it into reverse.
The official debt figures take no account of unfunded public sector pension promises, some Public Private Partnership liabilities, nor the potential cost of the banks’ bailout.
The OECD warned that the global recovery was uneven, unsteady and unpredictable.
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FINANCIAL TIMES 20.11.09
CBI backs Tory deficit strategy
By Jean Eaglesham, Brian Groom and Chris Giles
The CBI has backed Conservative plans to cut the budget deficit swiftly and sharply, rejecting Gordon Brown’s eight-year timetable to reduce the national debt as a “limp” approach that will prolong economic pain.
Richard Lambert, director-general of the employers’ group, endorsed Tory fiscal policy and welcomed the non-confrontational stance on Europe taken by party leader David Cameron. Mr Lambert stressed the CBI’s apolitical nature but his comments mark a significant shift by the business community.
Labour says economic recovery would be jeopardised by the Conservatives’ pledge of faster, more radical action to tackle the deficit than the Treasury plan for a gradual fiscal tightening until 2017-18.
But Mr Lambert said Labour’s approach could mean more pain. “History tells us that these are really difficult nettles to grasp but if you grasp them in a clear and bold way, then the pain lasts for a shorter period than if you just limply grab hold of them,” he said.
“Our strong instincts are that the risks of going too soon are less than the risks of waiting too long,” said Mr Lambert, who criticised the eight-year timescale: “Two full parliaments of chancellors being responsible just seems too much to expect.”
Mr Lambert also rejected the government’s proposed bill, announced in Wednesday’s Queen’s Speech, to put deficit reductions on a legal footing, favouring instead the Tory plan for an outside monitoring body.
Mr Lambert’s backing for Tory economic strategy reflects a reversal in allegiances since last year, when leading business groups lined up with the government against the opposition party in advocating a short-term fiscal stimulus. His intervention provides ammunition for George Osborne, shadow chancellor, who seized on what he called “truly terrible” official debt figures published on Thursday.
The government borrowed £11.4bn in October, the worst deficit for October since records began in 1993. Economists said the public finances were on course to exceed the worst ever full year in peacetime.
The Organisation for Economic Co-operation and Development urged the next government to announce “more ambitious fiscal consolidation plans” . Its latest economic outlook said credible proposals for deeper public spending cuts would “strengthen the recovery
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