Fantasy Island Economics

The 40% Golden Rule was officially smashed last week. The Office of National Statistics says even the fiddled government debt level now stands at 43.1%. The Treasury’s Code for Fiscal Stability allows the Government to break the Golden Rule temporarily if it specifies:

  1. the reasons for departing from the previous fiscal policy objectives and operating rules;
  2. the approach and period of time that the Government intends to take to return to the previous fiscal policy objectives and operating rules; and
  3. the fiscal policy objectives and operating rules that shall apply over this period

Well the government could honestly specify:

  1. We recklessly overspent in the good times and when things went wrong and we nationalised Northern Rock, we bust even the fiddled limits.
  2. We will probably carry on spending like a drunk sailor in port and leave the mess to George Osborne to sort out, just as Geoffrey Howe had to sort out our mess last time.
  3. We will just throw money at any electoral problem even though we seem to have run out of people and things to tax.

The penny has dropped for Denis MacShane of all people:

“the prime minister can announce that he will leave more money in the pockets of the British people by reducing their taxes. This can be targeted at the indigenous working class, furious at the incessant year-on-year council-tax increases above the rate of inflation… I do not know of a single minister who privately does not despair at the waste of money on pointless projects, publications, or legions of press officers that add no value.”

Welcome to economic reality Denis. When even former Labour Ministers are calling for tax and waste reductions the tax argument is won (without any help from the Cameroons).

Meanwhile, fresh from telling the banks to lend more mortgages at lower rates in defiance of LIBOR, Gordon is today going to tell the oil companies to drop prices in defiance of supply and demand. What is the point of Gordon’s market bucking fantasy rants? To get a photo op and show he is “doing something”, he will subsquently in interviews say that he told the oil companies to drop prices, just like he told OPEC to stop laughing at him. There is only one thing in his pwoer which will reduce petrol pump prices.

Given that some three quarters of the petrol price is tax, perhaps reducing the tax take on petrol would be the best way to help hard pressed voters. The Golden Rule is bust, we need economic growth. We can only boost the faltering economy if, as Dennis MacShane says, we “leave more money in the pockets of the British people by reducing their taxes”. You can’t buck the market Gordon, but you can borrow from the bond market…




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