Today’s round-up of our prospects is even gloomier than the last one. At the moment we have a temporary respite which is entirely dependent on a Conservative government next year with a strong majority and strong policies. The first is in danger from an obsessive group of Lisbon obsessives who, it is hoped, will come to their senses in time and the second from a genuine concern that Tory measures will nor be adequate to the moment.
For make no mistake , the scale of what will come - like it or not - will be infinitely greater than anything any party has so far suggested. The sacred cows of protected pensions and an inviolate free health service are in the balance. We either take really strong and unpleasant measures under our own control or we default on our debts and have to do as we are told by the IMF.
Raising business taxes would be completely counter-productive since already the number of companies who have relocated overseas or propose to do so if business taxes are increased is horrifying. (see separate posting)
To see just how deep is the sense of complete unreality abroad in Britain is the wild batty remark from Lord Stern (enobled for his headlong pursuit of the “warmist” religion) that we should “Borrow to the hilt to stop global warming”,
Governments should increase borrowing to tackle global warming despite the dire state of public balance sheets, according to Lord Stern of Brentford”.
We’ve already done that, Lord Stern, to pay for Gordon Brown’s mismanagement of our finances over the years. Hadn’t you noticed?
Christina
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SUNDAY TELEGRAPH 6.12.09
Time for the Tories to skewer this wild belief in Keynsian nonsense
Alistair Darling's last big set-piece speech to the House of Commons was a genuine where-were-you-when-Kennedy-was-shot event. For it was during the April 2009 Budget that the Chancellor finally admitted the UK's public finances had spiralled out of control.
LIAM HALLIGAN
Future historians will see that speech – the culmination of a decade of Labour's fiscal incontinence – as the moment when the UK was irrevocably relegated from the world's economic premier league.
Amidst audible gasps in the Commons, Darling revealed the UK's national debt would swell from 37pc to 80pc of GDP by 2014, not including the bank bail-outs. Just 12 months before, he'd claimed that sovereign debt would stay below its 40pc ceiling.
This country would borrow £703bn over the coming five years, Darling announced in April – a head-spinning 62pc more than his estimate five months earlier. Borrowing in 2009/10 alone would total £178bn – five times the annual average during the previous 10 years.
As it turns out, even those estimates were too rosy – seeing as Darling's April numbers relied on the British economy contracting by "only" 3.5pc this year. Yet, as of the third quarter, the UK remains the only major economy still in recession, with GDP set to shrink by 5pc or even more.
Lower growth, or steeper contraction, slashes tax receipts while stoking benefit spending – pulling the national accounts apart. In October, the UK's over-reliance on financial services and the housing market, both of which are struggling, meant revenues were 9.1pc lower than the same month the year before. Expenditure, meanwhile, was 10.3pc higher.
No wonder the UK is set to run a budget deficit of at least 13pc of GDP next year. That's by far the biggest in our peacetime history and also almost twice as high as when Dennis Healey went "cap in hand" to the International Monetary Fund back in 1976, the last time Labour wrecked the UK's finances.
Britain's national debt stock is now on course to hit 100pc of GDP by 2014 – not 80pc as Darling said just seven months ago. So this Wednesday's pre-Budget report is set against an even worse fiscal backdrop than that painted by the shocking Budget of April 2009.
It wasn't the "global recession" that got us into this mess. The UK's problems are its own, caused by excessive government spending during Gordon's Brown time at the Treasury. Between 2000 and 2007, public expenditure rose faster as a share of national income than in any other major economy, the state ballooning from 36pc to 48pc of national income. While the likes of France and Germany were scaling back public sector largesse, Brown was doggedly fulfilling the socialist wet dreams of his youth, taking the UK in entirely the wrong direction.
It wasn't just Brown. Weak Conservative opposition meant that few mainstream politicians challenged the Iron Chancellor's borrowing binge. Until recently, David Cameron's Tories were still "sharing the proceeds of growth", pledging to match Labour's spending plans while also cutting taxes. This ridiculous "have it all" policy, based on "efficiency savings" even more unrealistic than the Treasury's assumptions, was more an advertising campaign than the product of serious economic analysis.
In recent months, UK politics has changed. The debate, for now at least, rests on who can credibly spend less, rather than more. That's a credit to the Conservatives. Having said that, all the Tories have really done is utter publicly what the vast majority of the public already knows – that the UK has been living beyond its means and needs to grab its public finances by the scruff of the neck.
On current evidence, though, neither main party has grasped the scale of the problem. Back in April, Darling claimed his "tough" budget would "ensure sustainability of the public finances". His actual measures shave, at best, £4bn off our fiscal deficit by 2011/12. Meanwhile, the UK will borrow at least £200bn each year until 2013/14. The Tories "even tougher" measures hope to take £7bn a year off the deficit by 2013. These numbers are hopelessly low.
Senior Conservative need to state clearly that fiscal retrenchments focused on lower government spending, while laying out a credible deficit reduction plan, are far more effective than higher taxes. They need to dismiss absolutely Labour's claim that lower spending would "choke" recovery. This is Keynesian nonsense – disproved again and again throughout history.
Getting our public finances under control, and averting a "gilts strike", is now by far the most important priority for British policymakers. The April 2009 budget made history. On Wednesday, the Tories could do the same, by starting to fight back.
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