Wednesday, 22 April 2009

UK Budget - trampolines and a smirking Gordon Brown

Some quick reflections on the UK Budget delivered by Chancellor Alistair Darling.

1. No major stimulus measures were announced. Clearly Gordon Brown's enthusiasm for further tax give-aways or for increases in public expenditures were tempered by the recent comments of the Governor of the B of E and quite possibly by push-backs from the capital markets as to how difficult it is going to be to finance the extraordinarily large deficits announced.

2. The PSBR (Public Sector Borrowing Requirement) will be £175 billion this fiscal year, and £173 billion next year. The £2 billion difference strikes one as a rather laughable example of spurious accuracy. Both years represent approximately 12% of the national income and (perhaps coincidentally) allowed the Chancellor to point out that this was below the projected 13% figure for the US.

3. These deficits are the largest ever announced by a UK government other than during wartime.

4. Over the next four years the government forecasts an aggregate £600 billion PSBR but this all needs to be considered in the light of the forecast for economic growth in coming years and in turn the amount of taxation revenue raised.

5. The Chancellor now reckons that the economy will contract by 3.5% this year as compared to previous forecast of only a 1.25% decline from last November.

6. Claim is that UK will pull out of recession in late 2009 and growth is forecast at 1.25% for fiscal 2010.

7. Remarkably a 3.5% annual growth rate is assumed from 2011 onwards. Indeed if this wildly optimistic level is not achieved the PSBR numbers will be far more serious than already outlined.

8. The top rate of tax - pre-announced in the mini budget last November at 45% and due to start in 2011 - has now been increased to 50% at the margin and will come into effect one year earlier in 2010.

9. Various measures were announced to assist students and unemployed youth and various measures were re-announced relating to assisting the real estate market and small businesses.

10. Amongst the more amusing remarks in the post budget delivery debate came from David Cameron the leader of the Opposition who talked about the Chancellor's overly optimistic forecasts for future growth in terms of the "trampoline recovery"

11. Also part of Cameron's lively remarks was a rather pointed suggestion that the UK may have to seek out assistance from the IMF - which is not as implausible as it may seem.

12. Sterling is selling off after the budget as the need to sell boatloads of gilts to pay for all of this are beginning to sink in.

13. Gordon Brown sat through the whole budget speech beside his Chancellor with an expressionless look on his face but during Cameron's response his face took on that rather irritating smirk which will not win hearts and influence votes amongst the UK electorate

14. Overall this was an unpleasant task for the Chancellor and an easy prey for the opposition parties. It also did little to improve the prospects for those facing unemployment or the possibility of having their homes repossessed.

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