What an extraordinary week last week. On Monday we had a statement which was meant to update us on the lack of progress in the economy, but turned out to be the biggest Budget I have ever heard during my time as an MP. The government offered us no debate or vote on it, so we had to demand one. We eventually were granted just 3 hours to discuss it before the untimely closure of Parliament for yet another break.
My concern about the UK economy has centred around the large banking sector relative to National Income and tax revenue, the large consumer deficit, and the growing government deficit. I have felt the government has been running too much financial risk, whilst the economy itself will enter a period of no growth followed by relatively slow growth. I called for lower interest rates a year ago to try to stave off recession, but the loow moving authorities failed to see the problem in time. Now we are all going to suffer as a result.
All this seems to be endorsed by the government’s own heavily revised forecasts. They foresee growth for 2008 at 0.75%, with falls in quarters 3 and 4, followed by a fall of 1% next year, and growth of 1.75% in 2010.
Private sector forecasters are likely to see this as optimistic, with more fearing a continuation of the downturn beyond the second quarter of 2009. The UK’s growth in the last decade owed a lot to the success of banking, property, financial and business services, areas which are entering difficult times.
The government’s is spending and borrowing too much. The Chancellor told us he planned to borrow £78 billion this year compared with the last Budget forecast of £43 billion. The back of the new Forecast book shows that when the bank share buying and other financial transactions are taken into account, his true borrowing needs from markets and National Savings amounts to an astonishing £157.7 billion. That’s another £2700 overdraft for every man woman and child in the country. This will be followed by borrowing well over £100 billion the following year.
How has he got into such a position? There are three main reasons, The biggest increase in borrowing comes to buy bank shares and nationalise smaller banks. Their current estimate for this year is now £69 billion. It’s more than taxpayers can afford. We are already losing a fortune on the banks he is nationalising. He should have used short term loans and guarantees secured against their assets instead.
The second biggest change is the collapse of tax revenues. This year they anticipate a revenue fall of £30 billion, to be followed by a huge dip of ££64 billion next year excluding the policy change on VAT.
The third change is a series of policy alterations in favour of more spending and lower taxes. The £8.6 billion next year off VAT is the largest.
The figures reveal too much financial risk and too much borrowing. The government is now in the hands of the money lenders. It was once famously said “We do not own the nationalised industries, they own us”. The government will have to learn that lesson all over again with its expensive habit of buying banks.
Meanwhile, offering a 2.5% cut in Vat is not what the doctor ordered. People cannot afford their existing bills. They don’t want an incentive to spend more, they need to keep more of their own income to pay for the mortgage, the heating and the food. Keeping Council Tax down would have been a better help than offering a bit more ff the price of a new car or telly, at a time when prices are collapsing anyway.