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.


Anonymous said...

I deal with benefit claimants both UC and WTC each week and to say the system is a fuck up is putting it mildly.

So given that supposedly smart people (IDS) have inflicted this on us, you have to wonder why? You then wonder what the annual Budget navel gazing is all about.

While the rest of the world has moved onto just-in-time and real-time activities these sex-mad, power mad, thieves from the public purse, have their ritual of adding more complexity to something that isn't but is since they have buggered it up.

Cutting the numbers of MP's can't come soon enough - and the back of this current cadre of politicians.

Electro-Kevin said...
This comment has been removed by the author.
Electro-Kevin said...

The big swindles are petrol and beer.

Petrol in particular.

No. It's not 60% of petrol being tax, you lying bastards. It's 150% of the refinery price.

It's nearer 200% on beer and the rate of countryside pub closures (where I live) is as big a blight on our country's character and beauty as concreting over the countryside to build housing for gimmegrants.

I think I had pretty good awareness on the Brexit outcome - I'm surprised it wasn't a bigger majority. I think I'll be on the right side of the next general election outcome. As a natural Tory I think it will be Corbyn.

People hate being taken for mugs. If we're going to get socialism then we may as well have it.

I am the most dangerous kind of unionist.

Why ?

Because I can really punish the Tories - simply by doing nothing, ie staying at home and stopping voting for them. "Boomers caused the housing crisis" was incitement to hatred and a Ratner moment for me. I'm surprised more hasn't been made of it.

Dick the Prick said...

Sure i've mentioned that I used to work for HMRC doing tax credits. Not only is it philosophically weak but subject to massive fraud, relatively arbitrary in its allocation and far too complex for most anyone to work out. It was really quite depressing.

Anonymous said...

Can anyone tell me what taxes are for ?

Why doesn't the government just mine for Bitcoins (or similar) ?

Don Cox