Wednesday, 22 November 2017

Tuesday, 21 November 2017

UK Budgets - dull since 2003

Ever since Gordon Brown was Chancellor, now some 20 years ago (!!) Budgets have become a real tedious non-event.

Successive Chancellors have had seemingly little wiggle room since April 2003 when the introduction of tax credits totally gummed up the system. In 2015 the spending on tax credits reached £30 billion - a budget far more than almost any other Government department. Tax and Benefits (mainly pensions) rose to £125 billion.

Then, since the recession, the national debt has climbed and along with it our debt repayments up to a whopping £46 billion a year now - even with record low interest rates (the true next spend is around £33 billion, because the Bank of England owns a lot of the bonds and the interest the Govt owns therefore really goes to itself!).

These two spending items are what economists like to call structural spending. Whether the Government wants to or not, this spending will come out of the coffers. Many bits are tied to agreed laws and cannot really be altered, in the case of Government debt, we have to pay or else default.

This huge take of money from the budget, something like 6%, has come from nowhere. All the cuts made do not even finance it, hence we still have a 4% budget deficit and a big chunk of that is structural deficit which is why it is so hard to close.

Due to the above, successive Chancellors have been faced with the task of raising taxes to try to increase revenues to close the structural deficit or cut spending in other areas to allow room for these items to grow.

This is why we had the 10p tax budget, the pasty tax fiasco and the IR35 nonsense last year. All Chancellors are hamstrung by needing to further raise taxes, more if they want to reduce corporate tax etc.

Which is why all the spending in the budgets is so piddly, a billion on a road or ten billion over 20 years on a railway etc. There is no capacity for anything; unless your are Labour in which case you can add 10% to the national debt and spend away - but there is no evidence that ever works. If you look at USA and UK since the recession, we did austerity and they did Obama splurge. Both economies have grown about the same, but the US now has a much larger national debt - it was not worth it.

Interestingly Ireland and Iceland actually did full on cuts and real austerity for all and have recovered better overall now with economies in much better shape. As we said at the time, we would suffer long-term for the lack of political will to do the necessary back then.

So tomorrow we will get another spend nothing, gimmicky and fiddly budget - there is no alternative as long as the consensus to payout tax credits and increase the national debt remains in place for our political leaders.  Personally, I don't get why we do tax credits at all, subsidizing the low pay economy is the worst policy we have at the moment, amongst a bad lot - as it only seeks to further accelerate our transformation into a low wage economy.

Monday, 20 November 2017

Irish sense their moment to strike re Brexit

This is a frankly excellent article on the new Irish position re Brexit.

It delivers a few key truth bullets that are very insightful when it comes to understanding where the Irish are and just how much the border issue is going to be the decisive one.

As BQ wrote on the previous post over the weekend, the money situation is quite easy. We pay them vaguely what they want, we owe them £60 billion in payments anyway for the next 5 years, so really the argument is over a few billion here or there on a Government budget of £800 billion per annum. it is a rounding error and in return we get a Free Trade Deal likely worth £50 billion a year plus in benefits.

The EU citizens rights piece appears to have made great progress with the UK caving in a little re the ECJ and the EU retreating from demanding extra-territorial rights for its UK citizens, plus with the end of free movement but allowance for a Common Travel Area, a deal is in sight.

When you read the article, this has made the Irish nervous, they are the last piece of the jigsaw and fear the EU riding-roughshod over them (if only there were a solution to that.....). Their new super Pro-EU PM has also sensed, rightly, that now is the time for a battle. After December and a deal is agreed, the real Brexit tension will be off.

Also, more genuinely, a land border with the EU is a much harder deal to both sell to the Irish (note in the UK the hard border with France even today, versus the no border in the six counties) than anywhere else. The Good Friday Agreement is not just a stick to beat the English with, there are some substantive points that the UK has not really addressed. As such the Irish have gone in strong and demanded Northern Ireland effectively stay in the Single Market and Customs Union.

Although aggressive, this is the neatest bureaucratic solution, politically it is very tough to sell to the DUP who are the co-partners in the UK Government. British Ministers seem reticent to engage, from the Republics view, likely because they see the three issues as one and are doing horse-trading scenarios with the EU. The Republic is understandably not very keen on this, but equally has peeved EU negotiators by upping the ante when things are already fraught.

One thing unacknowledged by the article though is how credible the threat is, after all, if the Irish veto a deal, the default no-deal results in a much worse outcome for the Republic than any other Brexit situation. The danger with brinskmanship for both sides is that one might actually cause the breakdown that both fear so much.

Saturday, 18 November 2017

How much is worth paying

Image result for divorce

So, how much should we pay?
What is the price of the Danegeld ?

Theresa May is edging towards her final figure of £30bn over 5 years. £6bn a year until exit and, some £1-2bn for whatever deal the Uk has ongoing.
Mr Barnier is edging towards £50b. £10bn a year for 5 years

Does either really matter? The cost of bailing out the UK banks in 2008 was £850bn.
HS2 is currently set for £56bn. And will cost much more than that by the time its done.
Just putting in smart motorway signs at J3 of the M4 cost £1 billion.

Its small beer. Really, it is. 

Like an unhinged spouse whatever we pay in the end will be worth it just to be rid of them.

So although the EU is deliberately trying to make the UK  appear weak and defeated. That it is encouraging, even ordering, its Irish member to kick off inconveniently and blaming the UK for the EU's failings to move talks along like grown ups.
Whatever we pay is worth it isn't it?

Because the alternative is to go down the same irrational, destructive, bitter route that the EU wants to pursue. Today they are threatening to withhold our £5bn rebate. 
We could match, like for like. And then go Bunny Boiler loco as well.

Threaten to -

- Cease all EU payments immediately
- Lower corporation tax to 2%
- Reduce VAT to 10% 
- Consider our position in Nato
- Say that the divorce bill is a nonsense and our payments are zero
- Take EU citizens rights off the table. Say this will be the very last, not the first item on any agenda.
- Explain that the Irish border will be a yellow line on the road. If the EU want anything more, they can build it all, and impose it all, on their side.
- Refuse to attend any Brexit meetings until the Irish question is settled to our satisfaction.
- Explain we are heading for WTO. And will do nothing except possibly examine any proposals the EU has for something different. But every day will be a day towards WTO and our own economic survival.
And so on.

 £50 bn to avoid all the grief?
Worth it?

Or, how much would you be prepared to pay them to escape?

Friday, 17 November 2017

What is an "anti-corruption" drive?

In looking a little wider whilst we wait, comatose, for the next round of Brexit talks. It is certainly an interesting world in 2017.

First up, the Government revolution in Saudi Arabia. The new young prince has certainly decided to shake-things up. The most ironic thing I have read in years is his detainment of various cousins and wealthy Sheikhs in Saudi Arabia on an 'anti-corruption drive'.... Ha, well, I guess he would know about it from his past.

This is a pet peeve of mine recently, why do the media always repeat these Government lines. Every time a non-democratic Government arrests the opposition or tries to get its own mafia in power, they label it an anti-corruption drive. What they really mean is a pro-corruption drive in their favour.

Only this week in Zimbabwe we can see this in action again. Afraid that Mugabe will gift all his wealth and power to his missus, the army have stepped in to get rid of her....and install their own puppet. There is no chance of an election or real democracy or hope that the people will get a look in. No, the deal is to bring back an exile who will turns the taps on their way.

China is perhaps the most important victim of this kind of approach too. There are seven mafia groups in China within the Communist party who operate broadly on family lines. President Xi has not only made his the most prominent, but has set about dismantling tow of these groups totally and reducing the influence of the others. Where once upon a time after him another group would get its turn, now instead the idea is his team stays in power. All the while, for years now, the media in the West faithfully reports this as an anti-corruption drive.

The list goes on and on, perhaps only Brazil of late had a real anti-corruption drive that was labelled accurately as such.