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.

Media budget reaction shows why paradigm has shifted to an unstable political scene

I went to buy a newspaper today, probably because like most people I wanted to read about how Barcelona had done it!


In fact, what struck me was the horror show of a reaction to the budget. I watched the budget yesterday, nothing was said. The Government was talking about small £16 million improvements to roads and such like. No mention of £55 billion on HS2. It was a non-budget.


The one small thing was  1% change in NIC's for the self-employed - this would only impact to the tune of around £160 a year to a relatively small number of people. This is not 2p on income tax for all.


Yet the papers behave (because they are stuffed full of "personal service company types") as if the world has ended. Not only that but Labour rail constantly against the current do-nothing Government as if they are literally murdering babies and are the most evil Government of all time.


Truly, we live in a time of mass hysteria - there must be good reasons as to why, but perhaps that will take longer to figure out than a blog post.


In this environment though I see clearly why Trump and Farage are successful. Firstly they play the exaggeration game which helps fill the medias' need for sensationalism, then they top it off with very radical change.


Given the reaction to a non-budget, I can see why there is a need to go for radical change; minor steady-as-she-goes policy is shouted down as if it is a declaration of war. So, instead, you may as well go the whole hog on immigration bans or whatever floats your boat. The mass hysteria generated can only reach a pitch of 100% - so go for it, do crazy things, it can't get any worse.


I am not yet convinced that this will improve matters in the country as a whole, as it may result in much more extreme governments going forward. Perhaps this is a reaction to all Governments being  more or less the same in most areas during my adult life; it could come with a high price if we end up with McIRA as Prime Minister!

No Election budget

It is budget day tomorrow and as with all budgets since 2008, there are only likely to be thin pickings to be had.


Governments make a big deal of £500 million of spending on schools or whatever is their fancy for the year. Then they re-announce big already budgeted infrastructure spend and also re-announce normal spending commitments made over years as if they are new.


All not very exciting. Worse is that invariably the tax take goes up and up forever. That NHS keeps needing spending and the low wage subsidy economy is a very expensive thing to run.


So it seems taxes can never go down and all budgets are declared 'AUSTERITY' budgets by the left as spending can only ever be increased.


Personally, I find this depressing. The NHS is very important but clearly a machine that sucks in so much money needs looking at. The huge government spend on pensions sticks out even more to me though. These commitments need to be vastly reduced if future generations are to survive or even draw their pensions.


But as every Chancellor knows, problems more than 3 years out are someone else's problems....