I'll be commentating on the budget from 12 noon until 3pm on Sky News Unplugged with Martin Stanford, (alongside Alex Hilton) should you wish to press your red button. There will be a CoverItLive chat throughout the Chancellor's speech. But I will also be updating this blog as well. Somehow!
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Public borrowing in March was £38 billion - the highest on record. This takes borrowing for the current year to £90 billion. There is nothing more important in the budget that getting a grip of the public finances and getting borrowing under control. All other political and economic priorities must be set aside. We mustn't just get a grip, we need to be seen by the international money markets to get a grip. Borrowing for 2007-8 was predicted to be £38 billion. It will actually be four times that. The IMF thinks the bank bailout cost £200 billion, and has shamefully acceded to Brown's pressure to remove the table from its report. This is it.
Hattip: Burning Our Money
There is no point in putting up taxes which will stifle any green shoots which might be on the far distant horizon. But equally, tax revenues need to be kept up in order to avoid extra borrowing. So if there are any tax rises in the budget, they need to be highly targeted. I suspect it is the middle classes who may well be hit. Expect higher than average hikes in duties. With unemployment jumping by more than expected, there will be a lot of pressure on Alistair Darling to introduce high impact measures to tackle it. He would be right to do so, but only if they have real impact and are not just gimmicks.
Here are a few things which the Chancellor could do, but I don't expect him to.
1. Announce real cuts in public expenditure of at least 5% each year for the next five years.
2. Abolish RDAs and all the other regional quangos.
3. Announce a sell off of many of remaining government assets, including surplus land.
4. Put VAT up to 20% but in return, increase the income tax threshold for low earners.
5. Cancel the planned rise on the top rate of tax to 45p because most people agree it won't raise extra revenue.
6. Introduce measures to encourage small business start-ups including a tax holiday for the first two years.
7. Introduce new measures to help people back into work.
And as always with a Labour budget. Don't rush to judgement on it immediately. Wait 24 hours until you've read the small print. It's then that they usually unravel. Remember 10p tax?
32 comments:
I think I can safely say that no hard decisions will be made in this budget. They will announce horrendous figures, but no plan to deal with them. Just hoping something will turn up. Probably the IMF.
"A government that robs Peter to pay Paul can always depend on the support of Paul."
George Bernard Shaw.
hello... hapi blogging... have a nice day! just visiting here....
OK, it's government borrowing, but it is excessive spending that causes the borrowing.
If anybody feeds you the line that all governments have to borrow in a down turn, just gfeed them the numbers:
A 3.5% drop in GDP is about £50 billion. Assumuming 40% of that "lost" GDP would have ended as tax that explains £20 billion of the deficit.
The other £140 billion is down to overspending.
The KILLER FACT that no-one is able to mention overtly is that just as last year, the US National Debt Clock 'ran out of figures', our own UK version is about to do the same..
Our UK National Debt is about to tick over to ONE TRILLION POONDS !!
What the heck ever happened to Prudence, and keeping the National Debt to under 40% of GDP ?
This scandal needs to be given the maximum publicity.
The 10p abolition unraveled in seconds... anyone with a spreadsheet could have seen it hurt poorer people.
I had this sudden fantasy that Darling would stand up at 11.30, put down his papers, look at the Speaker and say:
"I'm not reading out any of this garbage, the economy is shattered and it is all the Prime Minister's fault, I have decided to resign as Chancellor."
Well, a girl can dream .....
Great idea, making all those people tasked with helping businesses through the recession redundant. Brilliant.
Iain, I'm so glad you posted your hopes/thoughts for the budget as I'm most interested to read them.
My own thoughts are; that I disagree entirely with your move to sell off government assetts such as land and buildings. This has given rise to the absurd position of the Home Office renting it's building from an offshore owner who does not pay tax. So I don't think that short-term solution one I would support.
Reducing the public sector would also save money in the short term and many contrived non-essential posts could be axed. But this would push more onto unemployment benefits. Yes this could create a net saving but again is not a good long term solution. Employment has a value greater than money.
I completely agree that the government should get a grip on the economy and public borrowing. But I see this as the obstacle: wealth creating industries such as manufacturing, fishing and farming have been slaughtered by successive governments. If a country does not create wealth then borrowing WILL increase - public sector jobs and services just move money around, they don't create wealth. So trashing the mining industry for example, or the farming industry (Tory AND Labour initiatives) and then granting planning permission for a supermarket does not do good, it does NOT solve the problem. Tesco moves money around and keeps a good chunk for itself, it doesn't create wealth like mining or faming. And it doesn't provide the kind of jobs that sustain a family like those industries either in the numbers that are needed to also sustain a community. The wealth created filters down through shops and buses but you have to create that wealth first. So I agree that business is key and that shouldn't be stifled but encouraged.
HOWEVER; we are part of the European Union that enforces health and safety legislation and then there's our own more stringent animal husbandry laws (and government fiasco's like foot and mouth). Businesses here ARE stifled and there's nothing the government can do untill it gets out of Europe, including controlling immigration. THIS point, that Peter Hitchens made in Oxford (I believe), is what I agreed with wholeheartedly.
Sadly I agree with you, Iain, that there ARE things the government CAN do, but won't. We'll see.
This scandal needs to be given the maximum publicity..............
Not if Brown can help it. I wonder how he muffled the IMF? Dirty tricks no doubt. So McBride is still hovering in the background? Be sure of it.
Iain Dale makes small steps in the direction of Libertarian Party policy.
Hurrah.
1. Not nearly enough. 5% is piffling.
2. Should have never been created. Yorkshire First. Yes, first to be shut down.
3. Avoid fire sale. Bad time to sell, mate. Huge scope for corruption. How about open auction of small plots so self-builders can have a crack, eh?
4. Income threshold first to £24k, then £65k then end income tax.
5. Agreed. The 45p idea is both a Tory (bear) trap and envy politics.
6. Needs more thought - serial entrepreneurs. Better to lower the corporate tax rate to encourage/retain domiciles and to raise the turnover threshold. Simpler to admin.
7. Cut taxes, cut red tape. Everything else just becomes pork.
A good start, though.
Shame we had to get into such a god awful mess before people realise what has been necessary for years.
Why would raising VAT again drastically be a good thing right now?
Wouldn't that just punish a) the poor as VAT is largely regressive, b) society in general seeing as it is the tax with one of the largest "welfare losses" and c) further reduce consumer expenditure and increase costs to businesses?
Where would you cut this 5% expenditure from Iain?
...and which new measures for getting people back into work? The only one I can think of is a cut in Employers' National Insurance, but even that would have to be funded either by cutting expenditure drastically or by having it as a stimulus which you're set against.
The real problem is the squeeze on discretional spending. Higher taxes and the increase in the cost of obligitary spending i.e. to keep alive (power, food, etc) has squeezed the amount that people hav eleft to buy 'luxuries'. Look around - prices for 'necessities' have never been higher, those for non-essential goods re so low they are practically giving them away.
Since <10% of income is available for discretional spending - a 2.5% increase in taxes e.g. National Insurance - results in a 25% decrease in the money available to be used.
stick to the gossip, you patently know nothing about economics
"Our UK National Debt is about to tick over to ONE TRILLION POONDS !!"
Our national debt is measured on a different basis from the US. The US treat federal pension liabilities as part of the national debt, by issuing special Treasury bills which are held in a federal pension fund.
If the UK did the same the national debt would be £1 trillion higher.
The IMF removed that table or they removed data from that table?
Because, in truth, that table doesn't make our debt look nearly as bad as it really is. 10 countries will have equal or higher debt as a percentage of GDP.
True, it shows a big bank bail-out ... but looking at that table alone you could be forgiven for thinking we had "low debt" to begin with, seeing as even with the second biggest bail-out we still place behind 10 nations for debt as a % of GDP.
This doesn't make the situation any better, but I can't see how that table could be seen as bad for the Government or good for the tackling debt cause.
5 percent for 5 years seems a little harsh but here at the on my excel spreadsheet (using a standard fixed income pricing model ) reckons - even optimistically - given the current figures a mimimum three percent year on year cut for the next five years is necessary just to stop slipping further into the red.
Anything less than 3 percent cuts year on year for five years should set alarm bells ringing in the makets.
"Introduce new measures to help people back into work," you say.
But that's the myth most repeated by the modern politician. There has to be 'work' for people to be helped back into. If there aren't the jobs, then you end up having to create artificial public sector ones for them to go into, bloating the non-productive sector of the economy even more.
I was astonished to find out how many politicians and economists took a year or more to understand the implications of removing the 10P tax rate. It was a terribly simple piece of maths to do.
All this other stuff is My Eye and Betty Martin - no point in trying to focus on bits of saving. The simple fact is that if one spends more than one has coming in the result is bankruptcy. Dickens ably highlighted that 150 years ago.
The entire fabric of government spending needs dissection. That starts with the Minister in charge - whose duties should include the obligation to prune waste despite his civil servants' resistance.
It must be an ongoing matter and a serious aim, not just a vague aspiration. There should be no scared cows - there are huge savings to be made in the NHS and in Education without affecting quality or quantity of delivery. It is axiomatic that the largest departments have the largest waste and so are the best targets for real measures, saving real money.
Look at the facts, Iain, and stop peddling fear.
Yields on 10-year UK conventional bonds are just 14 basis points higher than German bunds. Only Canada, the US and Japan have lower yields on their public debt.
And guess what? Japan has the highest net public debt to GDP ratio in the world - and the lowest borrowing rate. So your obsession with levels of public debt is entirely unsupported by reality in the bond markets.
I will repeat what I have said before , Iain , your proposals for slashing public borrowing would not only kill off any green shoots ( at least now you concede that there are some ) but destroy the roots as well and add over 1 and a half million to the unemployed totals .
Of course keep your IHT proposals as they benefit a few thousand rich people including the leaders of your party , it shows where the priorities of you and your party lie .
Did you look at the table graphic before posting it, Iain? I ask because it clearly shows that even under the OECD scenario, the UK will still have a smaller debt/GDP ratio than most other comparable countries.
Roger Thornhill is right on item 1 - 10% would be much nearer; starting with the ridiculous i.d. card - abolishing this and everything to do with it will save about £15bn over three years.
As for the quangos, I can't think of one that does the slightest good so away with the lot of them.
Philipa brings up the E.U. I'm not by any chance a natural law-breaker but I often wonder what would happen if we just told the E.U. to get lost and ditched all their rubbish regulations at a stroke - could we expect an invasion by the Germans and the French to force us to comply? Would they stop trading with us? Or visiting us? I don't think so.
Given the challenges that we face the incoming Government needs to really re-base the bloated public sector of the economy.
Brown alleges we are seeing the recession bottom out? Fine, well then over the next 5 years (ie one Parliament) lets commit to at least a 25% reduction in the public sector headcount. This will free up people for productive work in the real economy. And that means a real cut not the gerrymandered cuts Brown's made in the past where the Government have lied about reductions and staff have been re-designated to take them out of the total.
All of this is not the same as saying a 25 % reduction in public expenditure - but spending should be biased towards
1 supporting VITAL sewrvices (Health and Education for example) aqnd away from those that produce nothing but red tape
2 those areas where Governmnet can help improve productivity and promote growth eg transport infrastructure
and should be conditional on getting better VFM in public sector services.
This will all be painful but thanks to Brown we are in a world of financial pain anyway now. The next Conservative Government needs to be bold and radical. This is one way to do it.
Mark Senior et Al
Of course its just 'pedalling fear'. |That's why the pound has been so devalued against other currencies. Its just a little bit of angst on our part. Don't worry...just vote Labour and it will be alright. All we need to do is borrow some more. Honest. It will be fine.
The Chancellor ought to be addressing the unsustainable and spiralling cost to the taxpayers of the public sector pension scheme reported as £1 trillion http://business.timesonline.co.uk/tol/business/economics/article5063030.ece and publish the true cost of this burden. We cannot afford for this scheme to continue in its current form, especially whilst four fifths of the working population’s pensions have been eroded through no fault of their own. How can Labour who claim to want a fairer society justify this pension apartheid?
Mark Senior what Green Shoots?
On a day when figures show Two Million One Hundred Thousand are unemployed and as you remind me I am one of the Labour Governments casualities.
Talk to me about Green Shoots and I think you need a straight Jacket Mark. Even your Liberal Democrat leader agrees with me that Labour have created unemployment.
This country has created a state centric economy, cuts in public spending given the size of public borrowing maybe the only way in which sustainable growth - Private sector wealth creation starts!
On a final not Mark Senior - Only a few days left until the Gold Soveriegn you bet passes to it's new owner: You bet against a recession happening last summer! LOL
Cynic , the trouble is that when you and other Conservatives continually run down this country and it's economy for party political purposes you end up believing your own overstated doom laden rheotoric .
Yes there is some waste in public expenditure and that should be addressed and cut but to believe that it is anything like 25-30% is ludricous . The pound goes up and down against other currencies and this only bears a rough relationship to the respective economies . The current trend is in fact for the pound to be recovering somewhat from it's bottom .
Martin Day , you have been unemployed for rather longer than the recession started . That is a measure rather of any faults in your own unemployability rather than that of the Labour government .
There are clear signs that the bottom was reached in February but the recovery is fragile and likely to be slow , what we do not need is for a Conservative government to push us into a double much deeper dip through slashing the fabric of public expenditure by 25 to 30% .
Mark Senior incorrect! I have been Unemployed since when the recession started, particularly the sector I worked in! Which has been particularly hard hit by Labour's economic failure.
Mark, You show that you are wrong and Extreme - particularly surprising as you say you are a Liberal Democrat.
You are a traitor within your party and should be expelled. Your Labour sycophancy is sharlpy in contrast to many Liberal Democrat voters.
If you really think I am unemployable in this country, it says more about the useless Labour Government and its damage to the economy, whose policies you foolishly support than it does about me. No doubt the mugabisation of economy is something you follow with glee but many voters will shun not just the Labour party but the proxy support offered by Liberal Democrat members like you!
LD LD LD - Out Out Out!
We do need to bear down on public spending, because the alternative is a debt mountain that will have to be serviced for decades or higher taxes that will keep the economy flat. For the commentator that thinks just because the markets will lend us the money everything must be OK, I hope you don't own a credit card.
The abolition of the whole regional tier of government would save a great deal, and if powers and cash were pushed down to Councils would also promote democracy, localism and efficiency. There are still some harder decisions that have to be made. The Tax Credit system includes billions of pounds of abuse and needs wholesale reform, as does the general system of support for those unable to work. At the moment this acts to trap people in poverty and costs far too much. We also need to look at company taxation, particularly where a company does real business in the UK but then manages to avoid the associated taxation through imaginative use of off-shore vehicles. The government should simply cut a number of its top-down, hugely inefficient projects, including both ID Cards and the disastrous NHS computer programme. That would save tens of billions that the country desperately needs. On a personal level, taxes need to be lower for both fairness and because people cannot spend into an economy if they don't have the cash.
Most of all we need a coherent way forward that deals with the recession in fiscal terms, which must mean sharply reducing the rate at which the government is accumulating debt while at the same time promoting economic activity.
Mark Senior
I used to work in the public sector and know intimately how it operates in a number of areas. But let me give you a few examples of waste:-
* billions were pumped into the NHS. The Governments own best estimate is that 30% was immediately diverted to salary increases for staff. Not tied to productivity increases just more pay
* along the way nursing was 'professionalised'. Net result was a drop in basic patient care and in infection control
* that gap was plugged (or not in some cases) by throwing billions at the service for extra cleaning services to literally clear up the mess and stop hospitals killing patients
* we now have a situation where a locum consultant or agency nurse can often earn 30% more than a contracted one - so guess what happens in many areas - it's almost impossible to get permanent staff and continuity of care is all the more difficult
* billions have been wasted on IT that doesn't work - sometimes because its impossible to persuade clinicians to reform basic administrative systems to make them more efficient
But its not just the poor old NHS. I have worked with Departments where:-
* sickness levels were way above the norm for industry but absence was just accepted and not managed
* targets were set that were easily achievable or amorphous and then all the SCS could get bonuses for 'delivery'
* poor performers were just shunted into a career siding where they could see out their time wasting the time of others
* the churn of staff and refusal to actually take decisions meant that some difficult issues just went round and round in circles. I recall seeing one issue where a Department wouldn't move with getting legal advice. That took 9 months. After 3 months thinking about it the Director involved moved on and passed it to her successor who wasnt happy with the advice so asked for fresh legal advice...and so it went on. I left after 3 years and it was still unresolved
* there is often a complete dichotomy between policy and operational staff. The policy wonks are the Oxbridge elite who think great thoughts and disdain those who actually have to deliver anything. This gap then means that policies are often ill-thought through and when they fail the blame is heaped on those who had to deliver impossibilities.
* in my last post I was working with an Agency that was literally overrun with consultants. I was gobsmacked to find that while we were paying £500 a day for a given skill set they were paying £1500 a day (yes , a day) for the same skills. Surprisingly some of the consultants had been in the Agency for over 18 months and almost all the projects were way behind on schedule. Care to guess why?
These are not just one-off issues. There are many good people in the Civil Service and some of them do fantastic work for the community. But organisationally, culturally and in terms of basic skills in many areas it's way behind the curve. In my experience these are endemic and systemic problems in the system. We need it reinvented.
Here endeth the first lesson
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