THE BUDGET

The Chancellor should begin by saying sorry.
He should say sorry for the deepest and longest recession since the Thirties of the last century.
He should say sorry for their regulatory system which did not see banks and building societies were going bust.
He should say sorry to all the people out of work or about to lose their job.
He should say sorry for the huge damage caused to many pension funds, leaving people with little or nothing for their retirement.
He should say sorry for heaping so much debt on the British people.
He should say sorry for the wild conduct of monetary policy in recent years, which stoked the boom and then plunged us into the crash.

Instead, he will probably play silly and dangerous political games, seeking to use the budget to vilify the Tories and set them policy traps. He will wrongly say Tories wish to do nothing, and wish to damage crucial services.

The Chancellor should then give us an honest account of the dire state of the public accounts.
He should tell us they may lose us £200 billion through the banks they have bought and guaranteed, as the IMF have warned. That’s more than £3000 for every man, woman and child in the country. Even his own rumoured figure of losses of £60 billion means he admits he has lost every one of us £1000 on his bank nationalisation madness.
He should tell us the build up of debt has been too fast and too great, and poses us a big threat to our future growth rates and living standards.
He should tell us that his forecasts a year ago were wildly optimsitic, and his forecasts last autumn were so wrong as to verge on the mendacious. He should give us a sober assessment of the extent and duration of the downturn

Instead, he will go for too low a figure for banking losses, continue to be relatively optimistic about the extent of the downturn, and continue to understate the debts by a huge margin. He will grow a forest of recovery out of his tiny green shoots, all based on surveys showing the rate of decline may be slowing.

Finally, the Chancellor should say that he intends to start getting the UK public sector to live within its means. He will not delay this until after the next election, and not treat reducing public spending as some kind of imaginary game or political challenge to the Tories. He will instead this year make large reductions in undesirable, wasteful and not strictly essential expenditure. Schools and hospitals, nurses and teachers will be safe. ID cards, centralised computer systems, unelected regional government, more subsidies to banks and other large companies, increases in regulation and public adminsitration will all go. He will require all MPs to cut their costs and the costs of Parliament by 10% to show a lead.

Instead, the cuts will be delayed, political, and often not for real. This will be a fantasy budget and a very political budget. It could turn out to be the McBride memorial budget.This government not only divorced Prudence, but continues to hold a drink and drugs party on her grave. That is bad news for all of us.

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29 Comments

  1. Jim Pearson
    Posted April 22, 2009 at 6:39 am | Permalink

    I agree with alot of what your saying, I’m sure Labour will be political over responsible. But listening to Ken Clarke on the Daily Politics yesterday didn’t inspire me. I know he’s right that until an election the governement will continue it’s course of action. But he seemed to suggest that the tories would not jump right into this, but slowly work on the problems. I know you were supposed to be on yesterday, and I think would have given a more inspiring view.

  2. Johnny Norfolk
    Posted April 22, 2009 at 6:43 am | Permalink

    You are spot on again.
    What concerns me is that the mainstream media never see it this way.
    I would like to think it may be different this time, but again it would not suprise me if they follow Labours line.

  3. Brian Tomkinson
    Posted April 22, 2009 at 7:54 am | Permalink

    Darling will have to explain why his previous predictions for the economy and the borrowing requirements were so grossly inaccurate. If he doesn’t present a credible explanation (which would appear unlikely on past performances) why should anyone believe his future forecasts? If the markets don’t believe him what will that do to the currency? Or is that just part of the great confidence trick being perpetrated against the people which is for the government to inflate its way out of debt? The time has come to stop this rot and a general election is essential before this calamitous situation gets even worse. If the Conservatives disapprove of this budget then a vote of no confidence should follow.

    • Posted April 22, 2009 at 4:12 pm | Permalink

      Gordon Brown and Alistair Darling got last year’s forecasts spectacularly wrong for the same reason that they are going to be wrong this time. They couldn’t disguise the level of spending and therefore debt over the next two years, so they ran it through their model and then worked out the percentage increase of growth required to at least mitigate the awfulness of the resulting figures. That’s where 1.2 % growth in 2010 and 3.5% in 2011 have come from.

      It’s a stratagem employed by dodgy businesses when they are desperate to get the bank to bail them out with more cash. The bond markets may not turn out to be so gullible.

  4. alan jutson
    Posted April 22, 2009 at 8:02 am | Permalink

    Think you have said it all about the Budget John.
    May be one or two surprises, but guarantee that it will not be a genuine attempt to fix the problems we have.
    But no mention by you yet of Gordons side show about expenses (unless this is the subject of another one of your bloggs) clearly designed to take some of the heat off of Darling in the media today and tomorrow and next week.
    Please tell me that the Conservatives are not going to go along with this absolute farce and fall into the trap set for them.
    Vote for it and you support this nonesense.
    Vote against it and you will be blamed for sup[porting noses in the trough.
    Put forward a well thought out ammendment that a totally independent review of MP’s expenses is needed NOW (I know one is planned for later in the year) and will be fully supported by the Party.
    The proposed nonesense (if what you see in the press is to be believed) beggers belief, it tinkers with the problem for a short while, it is not even a solution in the short term.
    Tax free payment of £25,000 just for turning up!!!
    Thats more than the average wage in the UK, which is taxed.
    Looking for a man who could contribute.
    The Hays Headhunting Company have a man with a plan, he is in charge of their remuneration department.
    Interviewed on Radio 5 live about a week ago (unfortunately cannot remember his name).
    Very, very sensible comments.
    In short you would be treated exactly like any normal business executive for expenses, which would be checked (reciepts needed) and the same tax rules would apply as for any other employee.
    NOTHING IS TAX FREE UNLESS WE ARE ALL ENTITLED TO THE SAME UNDER INLAND REVENUE RULES.
    Nice to see Hazel Blears falling for the same photo farce (exposed documents) is she stupid, or was she put up as a patsy for a deliberate leak.
    Just seen the Brown You Tube video !!!!!
    Is he in training for a boxing match, practicing ducking and diving with a false smile, how sad.

  5. Pete Chown
    Posted April 22, 2009 at 8:58 am | Permalink

    According to the Guardian, “Darling believes he has room to provide a modest stimulus to growth and put political distance between Labour and the Conservatives.”

    The election campaign began early this time, didn’t it? Whoever wins the next election is going to have to cut much of this spending and raise taxes. If they don’t, the bond markets will collapse.

    At the moment, the markets may be postponing judgement. Traders will know that sound finance and elections often don’t go together. Once the election is over, the markets will expect to see the finances placed on a more stable footing.

    Somehow I think the Tories have to show that this budget is pre-election posturing, rather than “political distance”. Rather than showing Labour “doing whatever it takes” it shows Labour setting up spending plans that they know they will have to cut later.

  6. Robin
    Posted April 22, 2009 at 9:07 am | Permalink

    New Labour won’t make efficiency cuts.

    The irony is that the less justifiable the public sector jobs (i.e. inefficient) the more those public sector workers will rely on New Labour to keep their jobs. New Labour will not wish to lose marginal voters and so will not cut inefficient public sector jobs before the next election.

    Marginal jobs 4 marginal voters – is their backstop.

  7. Posted April 22, 2009 at 9:33 am | Permalink

    It’s just about possible Darling, if freed from his puppeteer, would say a great deal of your suggestions. However, Brown has an election to suffer.

  8. Rob N
    Posted April 22, 2009 at 9:57 am | Permalink

    I think you’re absolutely spot on, let’s see though.

  9. Posted April 22, 2009 at 9:59 am | Permalink

    Hi John,

    This is a truely shocking state of affairs, one inwhich the government shouldn’t be allowed to get away with.

    Based on the assumed shared view that the Conservatives will be coming to office in 2010, will David or George be standing sometime afterwards and give the country and giving a statement that declares the true state of the countys finances.

    It certainly should be, there are many people suffering on this shambolic governments decisions, we deserve the truth!

  10. Denis Cooper
    Posted April 22, 2009 at 10:05 am | Permalink

    The challenge for Darling will be to judge how much he will be able to borrow.

    Even though his borrowing capacity has been greatly expanded by the ingenious device of getting the Bank of England to prop up the gilts market using newly created money – an outrageous scam which has not yet been condemned as such by the Official Opposition – there will still be a limit.

    At some point gilts investors won’t want to play any more, and they’ll insist on getting off the money-go-round.

    For the present, they’re more than willing to be bribed to go along with the game, and in fact they protest if it’s suggested that the money-go-round may stop quite soon.

    For example, yesterday:

    http://www.bloomberg.com/apps/news?pid=newsarchive&sid=ankx.YpzcV3I

    ” Gilts Fall as BOE’s Fisher Says Bond Purchase Plan ‘Right Size’ ”

    ” U.K. government bonds declined as Bank of England policy maker Paul Fisher said its quantitative easing plan is “about the right size.” ”

    ” Gilts reversed gains after Fisher told Parliament’s Treasury Committee in London that the 75 billion-pound ($109 billion) amount committed thus far “looks to me to be calibrated reasonably well,” suggesting the central bank may not use all the funds available to it. ”

    ” Fisher’s comments “seem to intimate a lack of volition on his part to go beyond the initial 75 billion-pound foray, which is bearish for gilts,” said Richard McGuire, a senior fixed- income strategist in London at RBC Capital Markets. ”

    ” The central bank bought three billion pounds of gilts today, taking its total purchases of the securities under its quantitative-easing program to 38 billion pounds. The Bank of England plans to spend 75 billion pounds on gilts and corporate bonds by June after having been given permission by the Treasury to buy 150 billion pounds of securities. ”

    The split is £50 billion for “private sector assets” and £100 billion for gilts; so on that permission, the Bank could indirectly fund up to £100 billion of the government’s budget deficit.

    However it would only take another letter from Darling to King to authorise the Bank to create another £100 billion, and use it to buy gilts; so then the Bank could fund the whole of a £200 billion budget deficit by printing money and laundering it through the gilts market.

    That would need an average of about £4 billion a week over the coming year, lower than the recent rate of around £6 billion a week:

    £3.5 billion on Monday:

    http://www.bankofengland.co.uk/markets/apf/apfgiltresults090420.pdf

    “14:56 Asset Purchase Facility gilt purchase operation results”

    ” Total offers received Stg 6,355.00mn

    Total offers accepted Stg 3,469.94mn ”

    And another £3 billion yesterday:

    http://www.bankofengland.co.uk/markets/apf/apfgiltresults090421.pdf

    “14:50 Asset Purchase Facility gilt purchase operation results ”

    ” Total offers received Stg 11,906.08mn

    Total offers accepted Stg 2,909.95mn ”

    Parliament doesn’t seem to have any say in the matter, or at least it seems that the majority of MPs don’t want to have any say.

  11. Malcolm Edward
    Posted April 22, 2009 at 11:48 am | Permalink

    I agree, the budget is as predictable and will be as politically poisoned as the economic fantasy land of our sham Prime Minister and his puppet Chancellor.

  12. Robin
    Posted April 22, 2009 at 12:14 pm | Permalink

    A DO NOTHING BUDGET.

  13. Tony
    Posted April 22, 2009 at 12:54 pm | Permalink

    John: I’m intrigued as to what your thoughts are. If the govt. had allowed several of the banks to just collapse, huge numbers of people wouldn’t be able to take their money out or go about their business. The country would have just come to a halt!

    Reply: Yes – I said lend them as little as possible for as short a time as possible to see them through, but do not subsidise them and do not buy their shares.

  14. D K McGREGOR
    Posted April 22, 2009 at 1:23 pm | Permalink

    The Budget has been delivered .Well, was that it? There is no substance to this budget at all , what is there that acknowledges that we are in , today , the grimmest financial situation for generations.
    I find it maddening that this bunch of rogues can keep putting off the inevitable belt tightening to some point in the future , probably under a different government who will have to take the rap and do the necessary fixing.
    The blatant politicking of the public / private divide is evil and only confirms my thoughts that we need rid of these incompetents ,pronto!

  15. Posted April 22, 2009 at 1:36 pm | Permalink

    It is bad out there, and getting worse. In the USA the annual tax bills are giving payers unpleasant shocks, notably the State and local imposts. In the EU the strains are showing. In the UK the private sector is coming under siege. This morning on the M20 there were more Hungarian trucks that UK ones and a lot more Polish than Hungarian. There were numbers both from elsewhere in the Balkans, and the East. All to add to the usual numbers from the Low Countries, Germany and Spain. This has become the norm in the past year. So who will pay the bills?

  16. Paul
    Posted April 22, 2009 at 1:47 pm | Permalink

    What an appalling budget. No end to the squandering of tax payers money, unimaginable amounts of borrowing ( even using Labours figures) and a nasty little political tax rise to 50 % to keep the lefty vote onside and make the Tories look like rich list supporters if they oppose it.

    Vote of no confidence soon please, let’s get them out and start on the rebuilding .

  17. Posted April 22, 2009 at 2:04 pm | Permalink

    Congratulations on your speech on the Budget this afternoon in Parliament.

  18. Dan Tubb
    Posted April 22, 2009 at 2:05 pm | Permalink

    The deficit is £175 Billion.

    Or to put it another way the government is spending £20 Million per hour, that it doesn’t have.

  19. Posted April 22, 2009 at 2:07 pm | Permalink

    Hello. I’m not a member of any party, but I did enjoy your contribution via parliamentlive.tv a short time ago.

    And yes, what a good time to ditch the ID card scheme (not that there wasn’t ever a good time!)

    How much could we save by leaving the EU altogether?

  20. Brian
    Posted April 22, 2009 at 2:18 pm | Permalink

    Mr Redwood – excellent post budget speech in the House today.

  21. Cliff.
    Posted April 22, 2009 at 2:22 pm | Permalink

    It strikes me that Mr Darling’s budget was little more than a series of traps for the Conservatives for when we get into government.
    I watched the “Stepford Robot” Yvette Cooper doing the TV news rounds; She looked very uncomfortable and to me, appeared to not really believe what she was saying. Even Al-Beeb appeared to question her more robustly than normal. Perhaps Al-Beeb have at last got the message that Labour’s days are numbered and they will soon have to rely on the party they have rubbished, for the last eleven years, for their future funding.

    This budget seems to be too little too late and will make little difference to most people, well other than cost us all a few bob!!

  22. Posted April 22, 2009 at 3:46 pm | Permalink

    Your forecast, once again, was completely right.
    I only saw a bit of Mr Cameron’s speech and, yes, when he sat down he looked angry. At last!

  23. Frank O'Gorman
    Posted April 22, 2009 at 4:32 pm | Permalink

    Please send me a copy of your budget speech. I thought it was very interesting

    Reply: it was off the cuff, so there is no text. I will get a Hansard record soon and post that.

  24. Matthew Reynolds
    Posted April 22, 2009 at 5:13 pm | Permalink

    What the government ought to have done is to have slashed public expenditure plans by £60 billion over five years to balance the books. Quango’s, Incapacity Benefit,ID Cards, Barnet Formula,RDA’s , public sector pay & pensions, New Deal, Whitehall consultancy waste, public sector procurement and tax credits & housing benefit should be the main targets & state sector payroll needs to be far less. We could say good riddance to the Business & Culture Departments and cut our EU contributions until their accounts are signed off.

    VAT could rise by 5% to 22.5% to fund a £25 billion public debt reduction in 2010-11.

    The overall impact of spending cuts of £60 billion & a £25 billion tax hike will be to cut the budget deficit from a projected £97 billion in 2013-14 to £12 billion. Any rise in the dole queues caused by cutting government jobs could be offset by merging Job Seekers Allowance & Incapacity Benefit into one payment designed to slash economic inactivity. By allowing small & medium sized businesses to opt out of a vast number of regulations you could spur economic growth & create the jobs needed for all those doing either non-jobs in Brown’s client state or who are economically inactive. This will help get unemployment down sooner and public debt would be under control.

    Axing the tripartite system , giving the Bank of England back its lost powers , making the inflation target 2% on RPI-x ( more accurate & rigorous than CPI ) and ensuring that MPC members can only serve seven year fixed non-renewable terms to ensure stability & limit political meddling in monetary policy. Bank shares ought to be sold to fund boosting the reserves as a prudent policy & the Bank of England must have the power to curb bank lending if asset prices & credit levels get out of hand. Bank lending levels can permitted to rise once those problems are resolved.

    The 50p band on incomes exceeding £150,000 p/a is mad because the rich will just use their accountants to get as much of their money declared as capital gains meaning that they wont pay tax at 40p let alone 50p – rather the rich will pay 18p tax ( that is 10% less than the 20p basic rate that most of us pay). It is hardly fairer taxation from a government that cannot decide if it is New Labour with a pro-enterprise 18% CGT flat rate or Old Labour with a 50% top rate of tax. When it comes to tax Labour seem not to have much of a clue as far as principle is concerned.

    A budget like that would have paved the way for recovery – the new top rate would only raise £2 billion ( owing to brain drain , diminished GDP growth , increased avoidance etc). The £2 billion could be found from just cutting EU contributions still further or from less for farmers who would gain from less red tape if we pulled out of the Common Agriculture Policy. Axing the 50p rate to avoid long-term economic damage is just sound sense -RIP New Labour. The rise in the national debt is bad for our economic competitiveness as David Davis wisely said in his remarks in the budget debate today.

  25. SJB
    Posted April 22, 2009 at 9:14 pm | Permalink

    Matthew: “We could … cut our EU contributions until their accounts are signed off.”

    My understanding is that if the NAO adopted the same procedure as the Court of Auditors, HMG’s accounts would also fail to be “signed off.”
    http://www.publications.parliament.uk/pa/ld200506/ldselect/ldeucom/270/27010.htm (see para 149)

  26. Adrian Peirson
    Posted April 22, 2009 at 10:02 pm | Permalink

    I never saw your speech Mr Redwood, but it seems to have gone down well, maybe yourself or a ‘fan’ should start up a Youtube channel.

    Sadly, many people do not understand Money, I myself am NOT an economist, I’m an engineer but I believe it is no accident that such an important subject is not taught in school, I think the reason is precisely because whoever controls the money supply, really controls the Nation.

  27. Jason
    Posted April 22, 2009 at 11:51 pm | Permalink

    As ive said many times before on here….just as sterling looks like its recovering – another bout of serial economic terrorism from the Chancellor and his puppet master. The reasons for the wildly excessive borrowing are clear for all to see. Wildly optimistic growth forecasts which have failed to materialise coupled with an insane policy of spending totally out of proportion to our ability to pay….if this on its own is not a reason for the chancellor to step down – I dont know what is. And these people were lashing out at private sector analysts about their failure to assess things correctly. The Chancellor in giving such nonsensical growth forecasts last year (way out of line with consensus estimates) was effectively fabricating information to justify spending plans / investments. In the same way as private sector analysts fabricated information regarding the viability of residential mortgage portfolios. To me there is no difference. Whilst others may differ on that – what is certain is the degree of incompetence and denial that so characterises this excuse for a government. The Chancellor could have opted to give a more cautious budget – review spending, announce savings – drop unnecessary projects, that may have calmed market fears – but no – we have yet more borrowing and spending. This is about competence – and accountability and it is clear to me that if democracy can allow this much devastation to be wrought upon a populous effectively unhindered by opposition – it is of little use as a form of organising our nation. We have a term by term dictatorship – with no effective opposition due to the skew between parliamentary seats and popular vote. Even if a few parties got together they could not unhinge this government. The most important lesson of this whole episode is that as taxpayers we should never allow ourselves to be put in such a position again – the economic rape of our nation continues unhindered. We should demand the right to vote on matters of national importance and interest. We should demand the right to hold an election if any government threatens the nation in the way this government has done. We should demand some objective criteria regarding borrowing / spending limits – irrespective of who is in government. Instead we just have to sit as suffer in silence as decades of hard work and saving by many generations is needlessly squandered to satisfy the ego of the self-installed dictator and the wishes of his friends, the bondholders. It is indeed a bitter pill to swallow.

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    John Redwood won a free place at Kent College, Canterbury, He graduated from Magdalen College Oxford, has a DPhil and is a fellow of All Souls College. A businessman by background, he has been a director of NM Rothschild merchant bank and chairman of a quoted industrial PLC.

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