Osborne Biggest Loser in Budget

Osborne’s budget has gone down like a bucket of sick on the front-pages this morning. As long as we have flat-lining growth and a failure of political will to tackle spending, all fiscally-neutral budgets will be like this, identifiable ‘losers’ will out-number identifiable ‘winners’. The losers this time are those who were prudent enough to save for their retirement. The so-called lucky generation of baby boomers who had a working life in a long term growing economy and an overly generous welfare state which has now impoverished their children and grand-children. Some might spin this as a bit of inter-generational payback, others as an unjust punishment of those who saved for their retirement. Pensioners have a propensity to be voters…

Osborne is spending more than Brown, borrowing more than Brown and taxing more than Brown. The official numbers revealed yesterday show that spending is still rising in real terms, there is no hope of for an “expansionary fiscal contraction” if there is no fiscal contracti0n. The national debt is still rising. The coalition government’s self-defined primary mission, to close the deficit by the next election, is on course for failure. As long as this obsession with fiscal neutrality and timidity towards cutting spending continues the tax burden will not be reduced, the debt will not be reduced and growth will flat-line. Fiscally neutrality is just another phrase for tinkering with the tax burden.

The bond markets already know the government is going to miss the deficit target. All the fast growing economies in Asia and the Americas have lower tax economies than the UK and Europe. A dash for growth stimulated by across the board tax cuts will not as Osborne fears be punished by the bond markets, that is a fundamental mis-reading of bond market mentality. Osborne knows bond markets think long term, that is why the Treasury is contemplating issuing 100 year bonds. Bond traders understand that broad tax cuts are a real stimulus that will lead to a more dynamic growing economy which will reap more tax revenues long term. Why are we waiting?

Budget Bingo

Click the above to download the PDF with hyperlinks. Rules are simple: choose one phrase, policy or scenario from each row, so eight overall. Listen out during the Chancellor’s statement, first to six wins. Don’t forget to shout “Budget Bingo”!

Better Late Than Never

Budget purdah aside, the Guardian got the leak that everyone was chasing. Patrick Wintour reports:

“The chancellor has, sources say, been intellectually persuaded of the case for a cut in the top rate, a move that will endear him to the Tory right.”

Given that this sounds like a recent conversion to basic economic principles, Guido wouldn’t be so sure about the word “endearing”. Having got in touch with Team Ed this morning, they are yet to confirm or deny that Labour would reinstate the rate, on the off chance he ever ended up in power that is.

Tricky one for him…

Ed Balls Calls for Tax Cuts to Boost Growth from Zero

Ed Balls was on the Marr show this morning and also has an article in the Sunday Times ahead of the budget, advocating tax cuts to boost growth. He repeats his long-standing call for a reversal of the consumer whacking VAT hike and comes over like a born-again Nigel Lawson in his article:

…cut the basic rate of income tax by 3p for a year. Or raise the income tax personal allowance to more than £10,000… It would be better to cut VAT now — it’s fairer and quicker and would help pensioners and others who don’t pay income tax. But any substantial tax cuts to help households and stimulate the economy would be better than doing nothing.

Tax cuts won’t scare international bond markets, even the austerity friendly IMF is advocating a VAT cut for Britain, government gilts are propped up by QE (for now) so the issue of bond market vigilantism doesn’t arise.

It was a mistake to hike VAT and it is a strategic error to burden industry with crushingly high green taxes and penal marginal income tax rates of over 50% discouraging entrepreneurs from coming to invest in Britain. If the government is going to miss the deficit target, and it is, miss it because the government slashed taxes to grow the economy. The international bond markets will forgive a finance minister with a growing economy who misses his deficit target, they won’t forgive a finance minister with a contracting economy in any circumstances. Chancellor Zero knows that with no growth there is no hope for the deficit.

Moodys tell us what could move the rating down…

“… weak growth in Europe — and reduced political commitment to fiscal consolidation, including discretionary fiscal loosening…”

Zero GDP Growth Has Zero To Do With €urozone

Last week’s shrinking GDP figures were spun by George Osborne as due to the crisis in the €urozone. The decline in GDP could hardly be blamed on the US market which is picking up and growing at a respectable 2.8% last quarter, nor on Asian markets where China grew at an annualised 8.9% and India at 7.8%.

Is the decline in UK GDP really, as George Osborne implies, down to economic trade with the crisis ridden continent falling? The answer is no.

UK exports to €urozone states actually rose a healthy 11.3% last year:

It is a myth that the decline in GDP has anything to do with the €uro-crisis leading to a decline in exports to the €urozone. The barriers to growth are a domestic problem… 

Chancellor Zero

Even if the GDP numbers are not entirely unexpected, they are still a failure, a failure to grow the economy. The deficit can only be paid down if the economy grows, we can’t borrow our way out of a debt crisis. It is time for a supply-side revolution, why is the government implementing a policy of selected regional enterprise zones, why not make the whole economy an enterprise zone? It was a mistake to hike VAT and it is a strategic error to burden industry with crushingly high green taxes and penal marginal income tax rates of over 50% discourage entrepreneurs from coming to invest in Britain.

If the government is going to miss the deficit target, and it is, miss it because the government slashed taxes to grow the economy. The international bond markets will forgive a finance minister with a growing economy who misses his deficit target, they won’t forgive a finance minister with a contracting economy in any circumstances. Chancellor Zero knows that with no growth there is no hope for the deficit.

Hello 2012

As is traditional during the New Year low in news flow pundits are expected to predict the future. Recently Guido has been veering between pessimistic and apocalyptic on the economy. Not quite as apocalyptic as expecting  the world to end on December 21, 2012 as the Mayan calendar comes to an end and the winter solar solstice sees the alignment of the sun with the Milky Way to form a galactic equinox. Am betting that doesn’t mean the end of the world, and if it does, well no one will collect on that bet…

Guido’s predictions for this year:

  • Margaret Thatcher will outlive the €uro as we now know it. If one of the weaker countries doesn’t break free in 2012 it will just mean the crisis will drag on unresolved until 2013.
  • The probable Eurozone recession will be worse than the possible UK recession.
  • Inflation will drop sharply as the VAT hike falls out of the calculation but it will be stubbornly higher than many forecast. Savers will still face negative real interest rates. There will be no sign of the deflation predicted by Mervyn King since 2008.
  • There will be a collapse of another major European bank, arguably some have essentially collapsed already, it is just being hidden by governments and the ECB propping them up.
  • Boris will vanquish Ken Livingstone from frontline politics forever.
  • Ed Miliband will remain as leader of the Labour Party.
  • A Tory cabinet minister will resign in disgrace.

This blog, with the help of co-conspirators and readers, will in 2012 go on being Britain’s favourite political blog. Happy New Year…

£250,000 Prize Christmas Cryptic Challenge

It is a fact of life that they stop manufacturing news over Christmas, which is why the papers are filled with even more dross than normal. Double-page jumbo cryptic crosswords help you while away the time between Christmas lunch and […]

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Grow Faster, Go Further

Growth is anaemic, that much of the Balls critique is true, the cause is not the government’s spending cuts, they are a mere 1% of GDP. Osborne has made mistakes, hiking VAT hit the High Street by taking money out […]

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Thomas Cook On the Brink

After doing a whip around the banks, are we about to see the end of the company that started excursions in 1841?

As a result of the uprising in Egypt people seem less keen on packing their bags for Cairo […]

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Moral Markets and Other People’s Money

Guido has just got round to reading The Big Short by Michael Lewis, author of the eighties-era defining Liar’s Poker. It is the most readable book on the American sub-prime crisis that was the catalyst for the global sovereign […]

+ READ MORE +



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Quote of the Day

FT leader on Labour’s “Jewish problem”:

“If Mr Corbyn had serious aspirations to leadership he would tackle this problem head-on. Instead it falls to Labour’s moderates to ask themselves how long they will tolerate this state of affairs. Edmund Burke wrote that “the only thing necessary for the triumph of evil is for good men to do nothing”. Labour’s inaction over anti-Semitism is a stigma that must now be erased by the good people in its ranks.”

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