You’ve had the budget already

Politicians and the media will try to build up the drama of Budget day. In truth you’ve had the budget already, in two senses.

You’ve had it over the last year, as the government has heaped spending on spending, commitment on commitment.

And you’ve had it in the last week, as the government has seen fit to leak its own “ideas” on necessary changes to the ever expectant media.

The government cooked its goose – and ours – when it took over £3,000,000,000,000 of bank liabilities. It is delaying making those banks own up to their lossses and sort out their mess.

The government cooked its goose – and ours – when it kept money too tight for too long and intensified the downturn. We will experience a big revenue loss from the economic fall, and a big increase in spending on benefits.

The government cooked its goose – and ours – when it decided to undermine its own VAT revenue on top of all the other “spending pressures” and “reflationary measures” it took to get the PM over each media event in recent months.

So now we have the “cupboard is bare” budget.

Subsidies for electric cars that are not in production, tax increases for a future government, and employment subsidies on a small scale.

What we need is an honest budget, setting out just how much financial damage has been done, and setting out a course to correct it. In this government of the spinners by the spinners for the spinners I expect we will once again have the opposite. They can’t even own up to the extent of last year’s borrowing, so don’t expect them to get this year’s right.

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20 Comments

  1. Matthew Reynolds
    Posted April 20, 2009 at 6:24 am | Permalink

    Even totally freezing public expenditure in real-terms for a full five years would only save £39 billion overall for budget deficit reduction. I think real terms cuts in government expenditure with £60 billion p/a being saved overall within five years might be needed. Consultants , QUANGO’s , our EU contributions , Incapacity Payments to those well enough to work , Child Benefit for the rich, Housing Benefit & Tax Credits , a smaller public sector payroll , the Barnet subsidy to Scotland , RDA’s , public sector pensions , ID Cards and employment spending should all be targets for cuts.

    Simple facts are:-

    1)PSBR to big,
    2)Taxes cannot rise without killing economic recovery,
    3)Public sector bloated & wasteful.

    Ergo to bring down 1) without causing 2) 3) will have to face drastic cuts.

    • Waramess
      Posted April 20, 2009 at 8:17 am | Permalink

      Absolutely no doubt this is the answer. No point in trying to avoid the issue: big cuts in public spending are inevitable.

      The public are anticipating it and so long as it is made clear that this will not affect nurses, teachers etc then I suspect it will be adequately insulated from government spinners.

  2. Ian Jones
    Posted April 20, 2009 at 6:29 am | Permalink

    I noted in The Observer on Sunday, an interview with Darling proclaiming to “take over” the securitization of mortgages by banks to the tune of £50bn+ in order to “help” the housing market.

    I am surprised this has received so little attention for two reasons:

    1. Its 50bn+ spending in an area the govt should not be anywhere near and is obviously a desperate measure to prop up house prices just before an election.

    2. More importantly, where has the 500bn+ of Govt investment + insurance gone if it now has to pump in another 50bn.

    This can only mean that RBS and Lloyds fully intend to use the 500bn insurance and therefore cannot lend the legally required 50bn they agreed to as their capital ratios are screwed. So to avoid the political embarrasment of the insurance being taken with no increase in mortgages, the Govt is bailing them out AGAIN!

    If I am missing something then please help understand it!!!

    Reply: No, there is no end to the subsidy to this bloated industry

  3. alan jutson
    Posted April 20, 2009 at 7:05 am | Permalink

    John
    All most of us want at this late stage with all of the money spent is for them to admit the truth before they get voted out.
    How much are we in debt?
    What are the figures for PFI?
    What are the figures for Public Liability Pensions?
    Does the projected income from taxes cover all of that debt?
    Over what period of time will the books be balanced?.
    We have about as much chance of finding this out as flying to the moon.
    Past budgets have been a platform for spin and tax rises, with the real truth about how much has been taken in those taxes only found out some weeks or months later.
    I think I can gurantee that we will have an even more complicated tax system after Wednesday than we had before, which is the very last thing we all need.
    Thankyou for putting the figures in numbers, it always looks MORE SIGNIFICANT and REAL than in letters and words which to most people mean nothing (as a comparison).

  4. Brian Tomkinson
    Posted April 20, 2009 at 7:57 am | Permalink

    I hope you will be able to give us your alternative budget later this week.

  5. Robert
    Posted April 20, 2009 at 8:36 am | Permalink

    Funny how the Tories know how to cure our problems, when in fact the reason we are in this mess is Thatcher and Labour allowing banking to do as it likes. Your both the same in fact thats the problem the difference between both parties has become so small so predictable people cannot be bothered voting.

  6. mikestallard
    Posted April 20, 2009 at 8:38 am | Permalink

    I only hope that the lies, half truths and distorted 1984 type figures will soon be a thing of the past. As you say in you other posts, the days of this sorry government are rapidly coming to an end.

  7. Demetrius
    Posted April 20, 2009 at 9:12 am | Permalink

    The national budget? Who cares? I have just posted my budget for 2009-2010, it makes Darlings job look easy. The fact that you are all too likely to be right only confirms what a lot of people already know or sense. The world has changed, and for the great majority for the worse. What was it that Martha Stewart said about the little people? I am shrinking by the day.

  8. figurewizard
    Posted April 20, 2009 at 9:32 am | Permalink

    The real worry is that given that our economy is undeniably in great crisis this budget; which ought to make it one of the most important for decades, will completely fail to address the severe long term problems that we are facing. The truth is though that because Gordon Brown, who is the true architect of it is facing his own personal crisis in terms of carrer and legacy, it is this that will determine its content. The misery will drag on therefore, whatever Alistair Darling has to say on Wednesday.

    Seeing that many Labour MPs know full well that they will be unemployable once they lose their marginal seats there is no hope of an early election. That is why we will have to wait for another year before a degree of competence and pragmatism can return to the government of this country. Let’s hope that the financial markets give us that long.

  9. Denis Cooper
    Posted April 20, 2009 at 9:44 am | Permalink

    In the short term, borrowing becomes much less of a problem if the government can arrange to borrow newly created money from the central bank, and maybe the longer term problem of paying it back can also be circumvented.

    To recap on last week’s turn of the “money-go-round”:

    New money created by Bank of England, used to buy existing gilts from private sector investors: £6.5 billion.

    Money borrowed by Treasury from private sector investors, by selling them new issues of gilts: £4.5 billion.

    These are the running totals for the Bank’s purchases of gilts, in millions:

    12 Mar – £2000
    19 Mar – £6992
    26 Mar – £12993
    02 Apr – £18992
    09 Apr – £24992
    16 Apr – £31495

    and today it plans to spend another £3.5 billion of newly created money buying up previous issues of gilts, and some more tomorrow:

    http://www.bankofengland.co.uk/markets/apf/index.htm

    Ultimately, the Bank’s entire portfolio of gilts may be quietly transferred back to their issuer, the Treasury’s Debt Management Office, at no charge, where they can be cancelled.

    We’re still awaiting George Osborne’s condemnation of this outrageous scam.

  10. Frustrated taxpayer
    Posted April 20, 2009 at 9:51 am | Permalink

    A good start would be scrapping tax credits – an extravagant waste of money – much loved by the PM, but ineffective, inefficient, fraud riddled and costly to administer.

    Lets start dismantling the benefits culture by removing this plank – replace it with a simpler personal tax regime with higher personal allowances – easier to administer, less state interference in our lives, and puts money back in our pockets rather than as a handout from Government.

    A simpler tax regime should increase the take, reduce the cost of administration (e.g. the huge sums spent on HMRC’s IT) and make compliance and avoidance easier to manage.

    This is not about tax cuts (as we cannot currently afford them), but about having an effective and efficient personal tax regime.

    • alan jutson
      Posted April 21, 2009 at 5:31 pm | Permalink

      Frustrated taxpayer

      Exactly.
      I blogged on the issue of a higher personal allowance last year as the most effective way of helping everyone get more money into their pockets.
      The Liberals have now stolen my idea with a suggested start of £10,000 allowance.
      Better still would be £15,000.
      Adjust tax rates higher up to compensate if you have to, or better still adjust the rate of VAT, to mitigate this action.
      Why:
      It would encourage those on Benefit to look for a job where the Tax take, did not make it easily rejectable on ecconomic grounds.
      To simplify the system, incorporate national insurance and income tax, as one simple tax, with one starting point.
      At the moment we have the nonesense of the State having to collect two seperat taxes from individuals at double the administration cost. No one belives that National Insurance contributions go to pensions and the HNS anymore, they all go into the big tax pot.
      National insurance is the biggest Ponzi scheme ever developed, what you contribute today, is spent on someone else next week.
      There are many more areas that could be attacked to reduce the overwhelming cost of administration, if they want some help then ask the readers of this site.

  11. Neil Craig
    Posted April 20, 2009 at 9:57 am | Permalink

    The news today reports government briefings that Darling is going to cut spending by £15 billion so in that sense also we will have had the budfet before he stands up in Parliament.

    Borrowing money to subsidise things real customers don’t want is, of course, making it worse. Indeed I think over the last year if government actually had done nothing but start balancing its books we would be coming out of recession by now.

  12. Lola
    Posted April 20, 2009 at 9:59 am | Permalink

    I do not agree that cutting government expenditure will increase UB40 payments. If you sack the two or three million state pen pushers doing nothing on the average civil service salary they will end up doing nothing on various unemployment benefits. Since both are funded by private business and individuals it’s cost neutral, or even possibly a saving. (You can ignore the payroll taxes, they just net off against the pensions promise.) Crucially you will release these ‘workers’ to find proper wealth creating jobs in the real economy.

    It may be hard and unpleasant to sack these poor people, but IMHO they are the same three or so million that were doing nothing in the old subsidised industries that Thatcher took an axe to in 1979. They have been let down – again – by failed lefty policies. It’s tragic.

  13. Acorn
    Posted April 20, 2009 at 10:01 am | Permalink

    JR, I hope you are keeping your eye on the BoE balance sheet, there is an opportunity for a question to Darling on Wednesday. Particularly as the banks now have £68 billion parked at the BoE, on top of their £2.4 billion cash ratio deposits!

    As far as I can gather, this government is spending £200 million plus running the Treasury and £400 million plus on “actuarial” processes throughout its empire. Somewhere in that empire there must be a spreadsheet that costs the budgetary impact of all primary and secondary legislation. If there isn’t, there should be. Perhaps someone has actually worked out the “4Es” of that spending. Economy; Efficiency; Effectiveness and Equity in number terms.

    Until you know these numbers, you can’t cut expenditure in a surgical fashion.

    Some guy said a while back; “The citizen can do anything he likes unless there is a law that stops him. The state can do nothing unless there is a law that allows it”. We seem to have forgotten that this statement is one of the prime directives of a democracy.

    Remember, what a government borrows to cover its deficits is less important, (as long as you don’t scare the markets), as the amount the government SPENDS! It is government SPENDING that kills the economy as it is extremely poor at generating new and better goods and services which the private sector does much, much better.

    Reply: Yes, we will map the waste and watch the Bank

  14. michael mcgrath
    Posted April 20, 2009 at 10:07 am | Permalink

    I seem to recall previous Brown budgets where part of the cost of financing was to come from efficiency savings in the state sector. From current press reports, it is likely that such ideas will also form an important part of the forthcoming budget.

    What I am missing is a review of the outcome of these earlier bold plans. I fear that the results may be a potential source of Brown embarrassment and are hard to find. If anyone can supply this data, I should be interested to see…

  15. chris southern
    Posted April 20, 2009 at 11:17 am | Permalink

    They should have checked the resources China was buying up before pushing the inneficient and overly priced electric cars.
    Copper is very important to that project, and it’s something the Chinese are buying in abundance.
    Not to mention all of the fossil fuels that need to be used to charge the bloody things!

    Why didn’t they do a deal with African farmers for bio fuel, cheeply produced and far “greener” (as well as helping them trade their way out of poverty instead of being on benefits!) oh for some common sense in goverment once again.

  16. jim
    Posted April 20, 2009 at 3:12 pm | Permalink

    I’m surprised you say that the government kept money too tight for too long. Firstly sterling is not money, it is a debt note. Secondly, we have to get away from the idea that bureaucrats should set interest rates, they always set them at the wrong level. Thirdly lowering interest rates destroys capital, which is not a good idea in a capitalist country, where interest on savings are used to fund new businesses. Fifthly, this point implies that you believe the credit bubble could have been reinflated, it can’t be. We are already seeing debt revulsion amongst the public, nobody wants to borrow.

  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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