In the mid 1990s I worked as UK economist for what was then Warburgs and stayed up late after every Budget to analyse the small print.
This time the headline is enough and it is a terrible day for our country – borrowing next year of £175bn – a number barely conceivable when Labour attacked us back then for a peak in borrowing of £46bn.
We returned that deficit to surplus within five years. It will be a lot harder this time and for one main reason. Labour aimed to borrow in the good times. At least we tried to balance the budget over the cycle. Instead Labour’s policy was to aim to borrow enough so that our debt expanded in line with the economy. Of course, as soon as things went off track – as they always do – the deficit ballooned.
Labour then made it even worse by purposely borrowing even more. America may (or may not) be able to give some boost to its economy through fiscal means but sterling is no longer the world’s reserve currency. As a medium sized economy heavily dependent on foreign capital we have to reassure those investors that we are solvent and good for their money.
Gordon Brown has done the opposite. Instead of trying to bolster confidence and slow the outflow of foreign money he has driven it away by announcing borrowing that those investors know we cannot afford. The consequence is a collapse both in sterling and in lending for our homebuyers and businesses.
Confidence will only come back when government shows that it will put it’s house in order to get borrowing under control. Year after year the public sector has been feather bedded. 10% three year pay deals have been given away. As inflation falls they are going to become much more valuable to their recipients than expected, at the same time as hundreds of thousands lose their jobs in the private sector. Many would be more than happy to replace their public sector counterparts for significantly less pay and without a gold-plated pension.
However, this government ignores that and goes on wasting our money. It pretends to it’s clients that it can carry on with this munificence and that only the Conservatives would make cuts.
Of course that it rubbish because no British government will be able to borrow this much money for very long.
There are only two options:
– either Britain votes in a Conservative government to sort out the mess and push through big savings planned as well as we can;
– or it re-elects a Labour government that before long will be making whatever cuts it is told by the EU and the IMF.