Tuesday 29 November 2011

Autumn Statement failure

Yes, the hallowed speech has not even been uttered yet and already things are a foot. Mr Osborne has a poor hand to play and as those of you who indulge in card games know, you can't bluff forever with a pair of 3's.

The markets are about to show the UK what reality looks like.

Today's statement is along the right lines, some minor cuts, some attempt to increase demand, but nothing too tricky as there is still no money left. However, this won't really do for the long-term. We are in a crisis; this should be an emergency budget with radical solutions, not tinkering. Not many chances left now before the IMF come and do it for us.

However, it is the lack of demand that is the big issue. There is no demand in the UK economy because nobody, no even rich people, feel they have any to spend. Corporates don't want to take the risk either. The fantasy of credit easing is just that, businesses that can make it can borrow, those whining are poor risks.

There is only one way to address the lack of demand and that is to give people back some money. So that means NO cuts to social welfare, much as this is needed in the medium term. Welfare money gets spent. It also means there is a need for big tax cuts of people and businesses to give them more money to spend. These tax cuts have to be paid for by some Government cutbacks that have the least effect on demand - so subsidies can go, foreign aid can go, the defence budget can take another hit and most importantly, the NHS can take a hit - notably pay for GP's which averages close to £140,000 a year, up from £70,000 in 2004. Thank you Mr Blair - I recall him saying ' it is right we make our doctors and nurses the highest paid in Europe.'

Of the taxes to cut, VAT is an easy one, but not very well targeted, capital allowances for business and R&D credits are better because you can only get them if you spend money. For personal taxes, reducing NI is surely a way to go when you cut NHS spending.

However, as stated at the beginning, none of this is going to happen. Airy fairy promises about infrastructure spend are going to be made and sadly, the markets are going sooner or later to wake up to the fact that the UK is in a worse financial hole than Italy or Spain. Our Gilts will collapse in value (massive shorting opportunity here, the price of Gilts is not going any higher) and yields close on 5% at least, maybe worse. The only way to avoid this will be the Bank of England buying up the market with more QE - but at what point does the world notice that we have bought all our own debt with printed money - where does the value of the pound go then. Way below parity with the dollar, and probably parity with a real hard currency like the Aussie dollar.


Budgie said...

Yes, subsidies can go along with tax loopholes via tax simplification - make NI into IT, for example. Close DfID as you hint. The BBC should be sold to become pay-to-view.

I am not so sure about defence cuts. The MoD has made such a pig's ear of it that the money will be needed to straighten it out (large aircraft carriers not nuclear powered and one without a catapult; no fw aircraft to go on them; small a/c and Harriers scrapped too soon; FRES; etc).

VAT should stay at 20% but taxes on the low paid and businesses should be reduced. Scrap the minimum wage too. Scrap all maternity and paternity "rights". Aim to cut the tax book to 10% of its current thickness.

But Osborne won't do any of this, which should have been done as soon as the Coalition came to power. We're domed.

Anonymous said...

CU I think the rest of the world already know but are frightened if the UK goes down it will tip over their own currency, just like those dominos layed out so that knocking the first ones, Initially the US, spreading as it has to the UK and the PIIGS, the world financial system is so inter linked one false move now will knock the whole lot down. Buying things that people and countries do not want on the tick has gone on far too long and is far too deep. In this respect Maggie was correct, but it has been drummed into folks "Hey, why wait and save for that new car, cannot afford it, have one of our easy pay loans". Money lent to countries and people who not a hell of a chance of paying it back, it fired the American dream up which eventually blew up in sub-prime wheezes.

Budgie said...

I had not read Richard North's piece (http://eureferendum.blogspot.com/2011/11/disaster-in-plain-sight.html) on the aircraft carriers when I commented above. I see we even used the same description - pig's ear.

Jan said...

Yes, the first 2 years in any job/government is when to make radical changes so that time has now expired. I suspect that neither George nor Dave had the bottle for that. We could have done with a person more like Maggie to knock heads together and bulldoze through the changes needed.

trust deed scotland said...

Tough times ahead for many years, I do wonder if we have yet to reach the peak of this mega-recession.

Bill Quango MP said...

Bad news all into one bag. Osborne making sure his numbers are bad enough that he won't to revise them down again before the election and good enough that the markets don't panic if it looks we may never pay back our debts.

A bit over rosy really. The euro crisis isn't going to go away in a years time. If anything, it might be a lot worse.

On the upside US retail online+first day of Christmas footfall figures are not just good, but exceptionally good. If those numbers hold up until mid January then Obama prayers will have been answered.

So far in the UK the online is OK, but the floor doesn't look to good.

James Higham said...

Wrong people in charge, pure and simple. Clear Westminster out of the Big 3, bar six or seven who have an enviable track record and let them run an interim government until fresh elections are held.

Only one person with the nominal power to call that - the Queen.

Demetrius said...

Parity with the Yen?

Anonymous said...

The Condems are in the same pickle as Thatcher in 1980, all bad news and facing a single term. They need a new 'Falklands Factor'. I suggest putting 100s of banksters behind bars would be real vote winner! "I counted them all in, and none will come out for years!" :)

Sebastian Weetabix said...

If we had an aircraft carrier or two, we could line up Iran for the Falklands factor. I can see it now: "liberate the matelot's stolen iPods!"

Anonymous said...

Are you losing the plot CU? UK yields DOWN and breaking free from German bunds it seems - the markets actually like what they are hearing. What it is to have a plan that is at least credible.... Foreign investors were big buyers. QE is the only thing that separates us from doing a Greece and it seems to work - don't knock it! The US and China are doing the same so the effect on the £ will be small (if it weakens the £ compared to the Euro that will be a very good thing...).

Welfare isn't being cut. It will go up in line with inflation.

Deficit has been reduced from 146bn to 127bn, a bit higher than expected but not bad considering the EU crisis.

Anonymous said...

I don't see the cons losing the next election. I live in a normally Labour area and the concern around here is that the Cons aren't doing enough to make cuts. Lots of obvious cuts that could be made. I can't see people round here deciding to vote for Labour with Balls talking a lot of bull-crap about increasing spending. I think the polls just reflect the fact that the people would actually like the Cons to be taking a tougher stance on obvious waste.

Word verification is "magie". Interesting.

Budgie said...

Anon 4:10pm said: "The Condems are in the same pickle as Thatcher in 1980, all bad news and facing a single term. They need a new 'Falklands Factor'."

No, not really. The Falklands war started in April 1982, not 1980. By 1982 the recession of 1979-1983 was well on the way to recovery anyway.

The Thatcher government had to deal with a recession caused by an incompetent previous Labour administration, just like Cameron now has to. The difference is that Thatcher was capable and prepared, where Cameron is useless.

Bankers and bank directors, in the vast majority of cases, followed the regulations laid down by the politicians. The mess we are in is therefore the fault of politicians like Brown, Balls, Blair, Clinton, Bush, Obama, and many more in the UK, the USA and the EU. I would like to see these politicians jailed not bankers.

Anonymous said...

The Alternative Autumn Statement (misquoting Lemmy) -

"I'll scare you half to death, I'll take away your breath,
Don't try to run, don't try to scream,
Believe me, Gideon's gonna smash your dream.

I'm shooting out your lights, bring you eternal night
Don't try to hide, don't look around,
Believe me, Gideon's gonna bring you down."

Sean said...

As a mate in the antiques biz said to me the other day, "you never lose your cash if you always have the providence"

for some reason the world does not want to know the numbers, its looking at the history!

Anonymous said...

Easiest cut to make would be £40+ billion approx in debt interest payments per year.

We have no obligation to pay for Gordon Browns odious debt, which was primarily used to buy votes.

Laban said...

"On the upside US retail online+first day of Christmas footfall figures are not just good, but exceptionally good"

So Americans are spending money they haven't got, on things they no longer make - and that's good news ?

Electro-Kevin said...

I'm surprised you think no cuts to welfare is good. In fact payments have been raised in line with inflation.

The biggest portion of government expenditure (by far) is welfare.

It dwarfs the NHS.

Surely the priority has to be to cut this bill. How long can the taxpayer go on subsidising the state of affairs whereby cheap labour is imported when so many of our own are unemployed ?

I know I know. "But our own people aren't up to it"

They will be.

They're going to bloody well have to be !

electro-kevin said...

Budgie - Raise minimum wage. Cut welfare. Stop immigration.

Britain is not competitive whilst it is in denial that for every imported worker there is one on the dole.

electro-kevin said...

PS - I note that Osbourne has just done the reverse and narrowed the gap yet more between low paid grafters and the idle.

This will do nothing to motivate people to give up the dole.

Just what is he up to ?

Anonymous said...

" I note that Osbourne has just done the reverse and narrowed the gap yet more between low paid grafters and the idle.

Just what is he up to ?"

I think this was explained by Osbourne in his speech. He said that "high unemployment was caused by a lack of jobs". Labour laughed at this but the point he was making was that the unemployed we have are due to no jobs being available rather than benefit scrounging. Thus there is no point in cutting welfare right now to force scroungers into work because there is no work available for them to do right now. Of course if they sent the Poles back home then we could cut wlefare and force the scroungers and the genuinely unemployed back to work....

electro-kevin said...

There ARE jobs.

- Cut benefits
- Raise minimum wages (Immigrant workers are taxpayer subsidised as previously explained)
- British jobs for British workers

The result:

Fewer on benefits

More paying taxes

Lower living costs (less crowding)

More incentive to work

If they want people to spend they need to cut VAT and tax. Not put up benefits.

A combination of austerity and tax cuts is needed.

Anonymous said...

"We have no obligation to pay for Gordon Browns odious debt, which was primarily used to buy votes."

You know, that would actually sovle the problem in future. If we said that government debt would be written off with each new government, this would ensure that governments wouldn't be able to raise debt in the first place.