"The pre-Budget report will, we hope, be an occasion for the truth. We hope that Alistair Darling, the Chancellor, will stand up and tell us just how badly the Treasury expects the economy to perform over the next two years.
We hope he will tell us just how horrendously public borrowing is expected to balloon, even without the much vaunted "fiscal stimulus".
Private forecasters are expecting GDP to fall by around two per cent next year, and public borrowing to explode from £36 billion in 2007/08, to £65 billion for the current financial year, to £90-100 billion next year, and to £110-120 billion the following year. These are eye-watering numbers, requiring the sale of around £300 billion worth of gilts over three years, many to overseas investors.
The Treasury must be aware that, in these dire circumstances, the first priority of the PBR is to reassure investors that, even though the borrowing looks shocking now, steps will be taken that will restore fiscal rectitude and ensure the country remains fiscally solvent. This is all the more important as Alistair Darling effectively dumped the last, tattered remnants of Gordon Brown's "prudent" fiscal rules recently. The spectre of the 1976 IMF bail-out should still stalk the Treasury's rather grandiose Edwardian building at the end of Horse Guards Road.
Such a programme, as devised by the current Government, will probably include substantial tax rises coupled with a few spending restraints. My preference would be, however, for minimal tax hikes, or better still tax cuts, and a vigorous attack on waste in the public sector.
Public spending rocketed under Gordon Brown. His dalliance with Prudence was a short-lived affair. His true love was the fiscal equivalent of "spend, spend, spend", from rags to riches and riches to rags. Much of the extra spending has been squandered. The TaxPayers' Alliance has identified waste of around £100bn in an annual budget of around £600bn, so substantial public sector savings should not prove too difficult – if there existed the political will. But the current Government will surely prefer to inflict more pain on the hard-working taxpayers rather than take a scalpel to its benefit-dependent client state and the bloated public sector, even though the private sector will bear the brunt of the recession.
But it's not just the TaxPayers' Alliance that has identified "underperformance" in the public sector. The noble and rather under-appreciated Office for National Statistics has released data which show public sector productivity has fallen in recent years, especially since Gordon Brown turned the spending taps on in the early 2000s, at a time when the private sector has striven to raise productivity. Indeed, such was the fall in health service productivity over the last decade that, if productivity had been flat, about £10bn a year could now be saved. Instead money is dispersed for overgenerous and insufficiently-demanding packages for medical staff, and a host of diversity and other politically-correct initiatives that irritate staff and patients alike.
Suffice to say the endemic public sector waste and the wreckage of the public finances are the responsibility of the man who was in charge – Gordon Brown. And yet not one word of remorse falls from his lips. Indeed some three weeks ago he claimed that increased borrowing in the short-term was the most "responsible" way of helping the economy. I almost choked. Here was the man who had inherited an economic "golden legacy" from the outgoing Conservative Government in 1997, including the public finances which were undoubtedly heading into the black, without ever having the courtesy to acknowledge this fact. And here was the man who single-handedly destroyed the public finances through his own irresponsible profligacy, resulting in Britain having one of the biggest deficit-to-GDP ratios in the OECD.
More recently, ahead of the G20 meeting, he airily announced that he was "leading the world" in mapping a route out of the economic crisis, arguing that other nations would soon follow Britain's lead in launching fiscal stimulus packages to provide a jolt to the economy. Walter Mitty meets political bruiser.
As the British economy enters recession, it cries out for a significant fiscal boost, preferably by cutting taxes. This is especially the case when the impact of monetary policy is blunted by lending constraints in the financial sector as it is now. But given the parlous state of the public finances, the fiscal boost must, very regrettably, be relatively modest. It may well be the current crisis originated in the US, as Mr Brown keeps telling us, but we will experience an unnecessarily deep recession because of his misjudgements and mismanagement when Chancellor.
And then there were his raid on private sector pensions, his tripartite banking regulatory regime which fell at the first hurdle over Northern Rock, his flawed and administratively-complex tax credits scheme and his ineffective welfare-to-work programmes – to name but four. I could go on.
Gordon Brown was not a good Chancellor."
Sunday, 23 November 2008
It's your fault Gordon, yours do you hear me?
Well if you don't listen to me, listen to Ruth Lea ex head economist at the IOD and now Economic Adviser to the Arbuthnot Banking Group (my emphasis):