Monday, November 24, 2008

Longer range reflection.

Been to a presentation of the National Assembly's future agri-environment policy tonight. It required serious concentration. But it didn't work. The shock has been too great. I'm still stunned by what Alistair Darling told us this afternoon. It seems to me to be incredible. Next year's Government borrowing is predicted to be £118,000,000,000. Not only is this way more than ever before, but its based on the recession ending in just over six months time - and West Brom are going to win the Premiership. The Chancellor also told us that this borrowing will continue until (wait for it) .....2015/16. Shadow Chancellor, George Osborne, stood up in front of the open goal, and smashed the ball into the back of the net with aplomb, past the hapless Darling.

Most irritating feature of the Chancellor's speech was his constant and rather pathetic attempts to put all the blame for the UK's problems on the dodgy sub prime loans in America. My feeling (entirely unscientific of course) is that this ruse has run its course. People know that Northern Rock was a British Bank. And anyway, its always a tactic of the coward to dump the blame for failure on your best mate. Made him look like what a friend of mine used to call a 'big girl's blouse'.

The VAT cut will have minimal impact. The only reason this cut was chosen was that its easy to reverse. The sensible and most effective cut would have been to raise income tax allowances, but that couldn't have been reversed so easily. The reason I thought Gordon Brown wouldn't have gone for the VAT cut is that it doesn't help the poorest people, where most essential expenditure is zero rated. Big mistake, and in my opinion will not deliver much financial stimulus.

Perhaps the slimiest trick that the Government tried to pull, was to leak the creation of a higher Income Tax band of 45%. The reasoning was that they wanted us all to concentrate on this, hoping that we wouldn't notice the increase in NICs, effectively a rise in basic rate Income Tax. I do think that this did work for today. There must be some reason for the increase in shares price. I wonder if they'll fall tomorrow, as dealers read the small print.

And then we have the political dimension of all this. I ask myself whether Gordon Brown will call a General Election in 2009. This has been my prediction since I became a Parliamentary candidate 18 months ago. And I still think he will - unless he genuinely believes that we will come out of recession next July. Listened to a lot of discussion today, and conclude that its been a very bad day for the Prime Minister.

UPDATE - Guido explains. There was a general surge in shares across the world after the US Government bailed out Citygroup. The German and French stoch markets rose even more than the UK's. So the surge cannot be taken as approval of yesterday's PBR.


Anonymous said...

Good post Glyn.

The amount of debt he is getting us into is staggering, and as he's optimistically expecting to economy to grown again (by 2%) in 2010, the debt is likely to be worse.

The reduction in VAT is a waste of time. Most of my money is spent on food, so it will have little or no effect on my spending.

I can't see a 2009 election now, though a couple of weeks ago I was saying April 2009. I think our deluded PM actually believes his own spin so a 2010 election is my favourite now.

Frank H Little said...

attempts to put all the blame for the UK's problems on the dodgy sub prime loans in America.
Isn't it amazing? When the UK economy is in trouble, we are this poor little nation, swept along helplessly on the great international tide.

When things go well, or when other countries appear to be following our government's economic remedies, the UK is a major trading nation and Gordon Brown is at the top table.

Of course the UK made a major contribution to the credit bubble, whose sudden deflation has had world-wide repercussions. This started under the Conservatives. So did the hypocritical ambiguity about our world status.

The Half-Blood Welshman said...

What do you mean about West Brom? That's at least theoretically possible. They are in the Premiership after all.

My own view is that Forest Green Rovers are more likely to win the Premiership this year than this awful package is to do anything but terrible and irreversible damage. Stupid man even increased the cost of fuel for businesses by compensating for the VAT cut, making goods more expensive than they were BEFORE his VAT cut.

The more I look at this, the more I think that every Labour MP with a spark of honour should resign their whip in protest.

P Man said...

Yes, the stock market over here went up when the Feds bailed out Citibank and let the world know that Citibank would not be allowed to fail - all the same Citibank is letting go of several tens of thousands of its employees. So the stock market going up had nothing to do with the Chancellor's speech. The Feds (apparently) pumped 20 billion into Citibank and also stumped up a pretty hefty doorstop limiting the liability of Citibank to 10% of bad loan deals after a certain point thereby putting the Feds on a big hook.

Glyn Davies said...

dalesman - We cannot be sure of the Election date. I still feel that the Prime Minister will want the vote before he has to announce that the borrowing levels hav eto rise again - which he will if the UK does not move out of recession by next July.

Frank - I thought you were doing ok until you reached your last para!

half blood - This blog is far too reasonable to post such comment, but don't let that stop you.

P man - I wonder why the BBC didn't mention this?