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Budget overview

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Stephanie Flanders | 16:11 UK time, Tuesday, 23 March 2010

I've written a more general overview of the budget elsewhere. Something to cut out and keep.

Comments

  • Comment number 1.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 2.

    Stephanie,

    I noticed you take on the budget on last Sunday evening - why has it taken so long to let us get our teeth into it?

    The real problem that the Chancellor should be worried about is NOT public debt, but the much more significant private debt - and bubbles in the economy generated by faults in public policy.

    You are also unconcerned about the very poor level of savings in the British economy, why? This really matters from an economic standpoint and has been caused by another the same error in public policy.

    I wonder if it is your Harvard economic education that may blind you (and Mervyn King) to these basics!!!!

  • Comment number 3.

    Prepare for 'austerity'. The bankers will need your wealth for their bonuses so enjoy your devaluing currency, holiday in Margate, baked beans on toast and learn to sew. Life on Mars will become reality as we return to the 1970's.

  • Comment number 4.

    Thanks Stephanie for this. Do you have any thoughts on todays inflation numbers? The only place I have been able to get an update on them so far has been on notayesmanseconomics web blog where as usual he has some interesting views.

  • Comment number 5.

    Not wishing to be overly pedantic, however i feel it is very important to be clear on what exactly is being discussed by both main parties on 'reducing the deficit' - they are both squabbling over who would best deal with the annual, ongoing OVERSPEND, and i have not heard one syllable on how anyone is going to address and reduce the underlying DEBT.

    So to say that there is intended to be "a total reduction in borrowing of £82bn over that period" is actually to say 'slightly reduce the OVERSPEND and hence the rate of increase in overall DEBT' - but the DEBT is still increasing.

    In monetary terms, cuts in spending and/or rises in taxes of 175bn PER ANNUM have to be made before we even begin to reduce the debt.

    Health, Welfare, Education, Pensions - the annual bill for any of these is LESS than the amount we need to cut back, so take your pick of which can we do without, because that really is the message of how spent-out this country is.

  • Comment number 6.

    I find it all rather annoying. Brown appears to be wrecking the country and Darling appears to be trying to defend it. The figures stating public sector making up more than half the economy are simply shocking. Will anyone end me of this turbulent Prime Minister?

  • Comment number 7.

    Assumptions are always just that. These are the times to take a fresh look at the political and economic structures and to entertain new apporaches. If everyone (those presently in power) wish to continue as before than the question is: won't there just be another repeat performance? Stonger controls on banking and investment firms, more flexible and creative governments, investments in national production capabilities and moving some of the tax burden from the middle class to the wealthy. A lesson that has been learned is that moving production to cheaper labor in Asia was not really cheaper after all as we now are paying the costs. One can participate in a gobal economy as long as a national economy is maintained. A government that has the interest of the people first and business second would be a good starting point. What the current political/private sector process has provided is corrupt government, corrupt bankers and a failed economy.....seems they were not as smart as they said they were. They do always have nice charts.

  • Comment number 8.

    5. At 6:02pm on 23 Mar 2010, littlebaffled wrote:
    Not wishing to be overly pedantic, however i feel it is very important to be clear on what exactly is being discussed by both main parties on 'reducing the deficit' - they are both squabbling over who would best deal with the annual, ongoing OVERSPEND,
    ===============
    I'm afraid you are simply a voice crying in the wilderness. Everyone thinks the problem is the Banks

  • Comment number 9.

    To 5. At 6:02pm on 23 Mar 2010, littlebaffled

    The coming tax year will herald more quantitative easing.

    You can't cull a public sector workforce easily, it takes time.

    Union consultation etc.

    But you can't print more money ad infinitum.

    In any event it would appear that the cuts are being organised anyway if my source in the Local Authority is to be believed, with the main pain being dealt out by April 2011.

  • Comment number 10.

    It's unlikely Darling will do a Healey and put the country first (mind you Denis had to do what the IMF said!)

    That said Darling is the best of a bad bunch and I will him well as a longshot for party leader once Brown goes.

    At some point the national reserve of fat has to give out and we are all going to starve.

  • Comment number 11.

    This comment was removed because the moderators found it broke the House Rules.

  • Comment number 12.

    #6
    "The figures stating public sector making up more than half the economy are simply shocking."

    =======================================================================

    Why this ridiculous hang-up over the public sector.

    For the record, public sector as a percentage of GDP is higher than the UK in Sweden, Denmark,France and Germany. Most of these countries offer a higher standard of living and a better quality of life. It is lower than the UK in USA and Japan.



  • Comment number 13.

    Steph

    Isn't this budget a shame as Darling will not be in the job after May 6th?

    I would be more interested to hear what Ed Balls has to say as he will be in post if Labour win

    Or

    George Osbourne if the Tories win?

    Darling set his own fate with the Forces of Hell comment.

    So this budget will be re-written in 3 months or so.

    This is the worst possible message for the markets putting off the real decisions again.

  • Comment number 14.

    I'm confused!! Does anybody know who the YOU is in post #11 because it certainly ain't me.

  • Comment number 15.

    14. At 10:21pm on 23 Mar 2010, foredeckdave wrote:
    'I'm confused!! Does anybody know who the YOU is in post #11 because it certainly ain't me'

    No. And it ain't me either

    Excellent blog name though isn't it.

    Well thought out who ever you are.

  • Comment number 16.

    #11 is DebtJuggler on mine, though it sometimes reverts back to YOU

  • Comment number 17.

    A well written and excellent analysis Stephanie as usual.

    It is a shame that many commentators like littledevil and DevilsAdvocate do not understand that the whole premise of money is debt (see Nial Ferguson's excellent book The Ascent of Money). Overspending is possible as long as the market are confident that the Government can the interest or pay refinance the loan.

    The question facing us all is whether there is a fragile or a robust recovery. We cannot answer this question yet. If you believe the recovery is fragile, then you continue borrowing and using Keynesian measures. If you feel it is robust, then you should start repaying the loan.

    The naive view about taxing the rich does not work because the bulk of tax revenues comes from those who earn less than £40K a year. Sales taxes have a greater impact on the poor. So you either cut spending or borrow more to maintain services.

    So the only way such out is to engineer economic growth. Sadly, that can only come from increased confidence in the global economy and not from manipulation of market sentiments or appeals to naive household economics that apply to individuals and not national economies!

  • Comment number 18.

    i dont think there is a deficit in short term analysis it appears as though Britain are losing out compared to other countries or past years of success but to be honest its more of a BREATH IN to BREATHE OUT affect, the country needs to adjust to upcoming powers such as China, and the reletively new Dubai as a international breeding place for millionaires and investment. this is a low and soon there will be a high.

    so all in all moaning and controlling the media output to the masses over the past 18 months is a waste of paper and time to read it all but what do i know.

  • Comment number 19.

    #12 >>For the record, public sector as a percentage of GDP is higher than the UK in Sweden, Denmark,France and Germany. Most of these countries offer a higher standard of living and a better quality of life.

    Having been to all four of those countries and worked there at some point in my nomadic existence, I can agree that they have a higher standard of living. However, they also have a lot less of the personal debt overhang that the Brits have. Partly, this is because they have such high taxes that it's better to spend it before it's taxed away !! And partly, it's because they don't believe in borrowing to finance the good life !!

    The French, Germans and the Swedes (particularly the Germans) still have substantial manufacturing industries which Britain has not !! And the Danish have an agricultural industry that, not feeds their own people, but still have plenty for export !!

    In addition, Sweden has a nice neighbour who generates zillions of watts of electricity at extremely cheap rates; so they get a good deal for their manufacturing and, hence, helps them to keep costs down !!

    The Danes feed the Germans and the Germans flog them lots of goodies like Mercedeses and BMWs and both sides try their hardest not to mention the war !!

    What happens in other countries are other peoples' problems; what happens here is ours. If we don't deal with it sharpish and in a significant manner, we'll be assigned to the dustbin of history !!

  • Comment number 20.

    #13 >>I would be more interested to hear what Ed Balls has to say as he will be in post if Labour win

    Will he now ?? It already appears that the Comrades are sharpening their knives for the Ides of May !!

    http://www.dailymail.co.uk/news/article-1260178/BA-militants-plot-control-Labour-Damning-emails-strike-union-chief-reveal-secret-agenda.html

  • Comment number 21.

    #14 >> I'm confused!! Does anybody know who the YOU is in post #11 because it certainly ain't me.

    Well, it ain't me, either !! :-)

    I think it's be "DebtJuggler" !!

  • Comment number 22.


    Silly question, but if the announced deficit is as low as £155bn, does the promise to halve the deficit mean to half of £155bn? lol

    Of course, the spin doctors will have already realised that we've seem the £178bn reduced by £23bn - or most of what was expected to come from the illusory growth of 3.5%. Rather than change the estimate, however, expect them to start breifing that "even if we fall short" we're covered.

  • Comment number 23.

    Just a slight digression, but I think the BBC blog IT controllers need a "little" re-think when they try to label the commenter as "you" when the "reader" is also the "commenter" !!

    Makes things a tad confusing !! Had me confused for a long while until I happen to read my own comments on a friend's machine, logged in as him !! Perhaps they thought it was a nice-to-have feature !!

  • Comment number 24.

    #18 >>and the reletively new Dubai as a international breeding place for millionaires and investment.

    Currently, the only thing that Dubai breeds is over-priced, over-built property that few want to buy !! Other than that, it's a nice place and I visited it often enough over the years !!

  • Comment number 25.

    Why should the citzens of this nation have to go "cold turkey", when the bankers and other capitalists who caused the problem are still "shooting up"? Why must the workers in the UK bend their knee to undemocratic countries, China and the like? It is a nice set of freedoms the right allows the ordinary folk. The right to work for longer, the right to smoke, to be fat and unwell. Yes UKIP have the answer, let "Good Old Blighty" join a New Commonwealth. Lets join in a free trade arrangement with the likes of the trouble free democracies such as Pakistan and Zimbabwe. UKIP "You kipper", "You cod them", it all sounds a bit fishy to me. Who is this faceless market "the enemy within" who tells a democracy and its citzens what it can and can't do? Yes lets be diverted by "duck ponds" and "moats". Let our "Good Old Brit" outrage cause us to spend thirty times more solving the problem than the problem costs. Lets not pay the MPS a fixed up front wage. we like our Victorian practices and values, its tradition, every non dom's right. I may be an old lefty coal miner. So you can sneer that the last capitalist to leave should switch the light out, but hey, if they stayed can they guarantee that the lights will be still on in ten years time. It was great and wonderful sight. The "Charge of Sid and the Gas Brigade", wind power and solar power to the left, Enhanched Geothermal Systems to the Right. No lets charge onward to Nuclear Power, before the Uranium runs out. We had better hurry though we have only thirty years of the stuff left. Don't worry about the poor souls who have to mine the stuff, we can always plait our nose hair to raise a couple of coppers to salve our "green" conscience. Rant over.

  • Comment number 26.

    Stephanie

    You say "many in the city now think it's possible that Labour could end up winning the most seats in the election."

    In that case, the Budget will be a giveaway to boost votes, and the economy will go down the tubes.

    Time to leave our septic isle.

  • Comment number 27.

    1. At 4:39pm on 23 Mar 2010, writingsonthewall wrote:
    This comment was removed because the moderators found it broke the House Rules.
    --------------------------

    Time to go public, wotw! BBC censorship won't have it any more. Why don't you start a blog or something similar? I'll be a reader for sure!

  • Comment number 28.

    11. At 8:55pm on 23 Mar 2010, DebtJuggler wrote:
    This comment was removed because the moderators found it broke the House Rules.
    --------------------

    Let's all protest against BBC censorship!

    This comment was removed because the moderators found it broke the House Rules.

  • Comment number 29.

    Interesting

    Darling was going to be out as chancellor in any case, the comments re forces of hell did not impact on this

    Sadly, the two falsehoods that too many people believe are causing difficulties with your average bloke in the street understanding what the reality is

    Many on here disagree on the causes, most sensible bloggers, with differing views agree on the definition of the mess

    We were in financial difficulty PRIOR to the banking crisis(Falsehood one, all caused by the banks)
    Not ALL banks were needing to be bailed out(Falsehood two)
    The public sector is too big, and we can't afford it
    Lots of people are confused by the deficit and debt and swap the two around

    Without the full spending review, due in the autumn, this budget is largely meaningless

    It is somewhat beyond belief that some in the media are trying to spin the story that as we are only going to have a deficit of £160,000,000,000 this tax year...it is SUCCESS!

    Even more stupidly, some talk of the government being able to spend some of the 'savings' between this and the forecast £178bn on a giveaway!!!!

    This sums up the dumbing down standard of reporting on TV and in the printed media, that the general public are almost encouraged to believe that money you haven't spent, that you were going to borrow anyway is a saving?

    I believe the Labour Party is heading for civil war, and I just don't see a comfortable landing for them

    Harman? Balls? Milliband?

    The public will not warm to any of these

    Interesting times ahead politically....tough times ahead economically

    Time to find your backbone Mr Cameron

    The extremely low expectations most have of the job you can do, is a good thing, as long as i doesn't prevent you from getting a majority

    Blair had high expectations...and look what he did?

    'Things can only get better'

    They sure can't get a lot worse




  • Comment number 30.

    Interesting how yesterday's reduction in inflation was ignored. Presumably the doom-mongers bleating for interest rate rises weren't happy so the story was suppressed. Caledonian Comment

  • Comment number 31.

    12

    Richard

    You wrote this on the previous blog

    Please can you tell me how we can afford this

    Please can you tell me why you think there is a hang-up with the public sector?

    I appreciate that you would like the UK to join the Euro, and that you would like a USE

    You will be aware I strongly oppose both

    In view of Merkel's comments recently, there has to be some doubt as to the future of the Euro in the medium to long term, so I am even more opposed to it now, if that was possible

    I ask these questions in a non-confrontational sense

  • Comment number 32.

    HA! Typical.

    I buy a house just as the no stamp duty period ends, and have to pay.

    Then what happens? No stamp duty for FTBs!

    Ahhhh well, you win some, you lose some.

  • Comment number 33.

    #19 ishkandar,

    Isn't it funny "they have higher taxes" and yet they have less debt. They also have manufacturing industries?

    So you have to ask yourself why are we in the mess we are? It's not all down to public spending but more than a little has to do with public sector greed particularly in the financial sector.

  • Comment number 34.

    @17 David

    On the contrary - i am painfully aware that money is a promise and central bank creation of 'money' has seen a massive devaluation the value of that promissory value; witness the c.95% destruction of the value of sterling & US dollar over the past century, particularly noticeable once each country came off their gold standards.

    What i am acutely concerned about is the impending final 5% implosion of the value of money brought about by it's underpinnings; ballooning national debt, feckless government, QE & inflation, culminating in and as witnessed by a waning of the market confidence that you refer to [in the ability to repay that debt].

    For most people, the destruction of this final 5% will represent nigh-on 100% destruction of value perceived in their lifetime.

    Yet still the politicians argue over how & when to shave a few billion off the annual overspend...whilst leaking tales of "no stamp duty for FTB's" thus encouraging yet more new entrants to the world of debt.

  • Comment number 35.

    (Apparently it offends somebody to point out the obvious as I did in #2.)

    I'll have another go...

    The budget commentaries concentrate on 'public' debt reduction when the bubble that crashed the economy is 'private' debt. Indeed, given the coverage, it seems that it is the desire of the government to increase private debt further - which can only lead to yet another deeper and more cataclysmic bubble and subsequent crash. WE must go through a period of private debt deflation, not just public debt deflation - it is essential for a return to a normal stable economy.

    There seems to be a collect blindness among economists about this problem and I put this down to their defective education. They (the economists) caused this bubble and crash. They destroyed the economy.

    #14. foredeckdave, on 'You' - it ain't me either!

    This is a case where the user name should be deemed to be unacceptable and I would urge the person who has chosen 'you' as a user name to change it for everyone's benefit.

  • Comment number 36.

    #20 Ishkandar

    That Daily Mail article is a scary confirmation of what was widely suspected last week.

    This budget will not do any favours for ordinary folk who struggle to make ends meet as it is.
    I sincerely hope that your link will wake a few people up!

  • Comment number 37.

    35

    You are correct, everyone else in the world is wrong?

    Seems unlikely

    Debt as a whole is the issue, and the deficit is not caused by anything I do, it is caused by the ill disciplined Mr Prudence (oops...another myth shattered)

    The public in general are starting to repay debts as opposed to incurring greater debt, so HAVE realised that the genie has to be put back in the bottle

    Why is private debt to blame?

    What makes you say the government is encouraging more private debt?

    I disagree with your view that we need 5% interest rates NOW, as you will know, yet I would like to know why you make the assertions in your post

  • Comment number 38.

    Portugal has had it's credit rating reduced

    What is your view on this Stephanie?

  • Comment number 39.

    #31
    "In view of Merkel's comments recently, there has to be some doubt as to the future of the Euro in the medium to long term, so I am even more opposed to it now, if that was possible"

    =======================================================================

    Playing hard ball with Greece will not jeopardise the Euro; Greece is only a very small component.

    Joining the Euro in the medium term is the only rational choice (for the UK) and something that New Labour are already working on.


    "Please can you tell me how we can afford this"
    =====================================================================

    As we always have done. Please remember the deficit is largely down to the bank bailout, and will be dealt with in a rational non-hysterical way.

    A healthy public sector is very necessary to a healthy economy as various more successful economies in Europe prove.

    Call me old fashioned, but if I am building a garden shed and it keeps falling over and I notice that my next door neighbour is also building a garden shed and it does not fall over should I not try and learn from it.

    Look to Europe and learn. Save yourself and join the Euro.

    Do not believe everything you read in the Daily Mail which should be restricted to wrapping up fish and chips (not allowed due to directive from Brussels :) ).

  • Comment number 40.

    #29 kevinb,

    Come on Kevin! Who do you think funded the corporate and private debt levels that are bedevilling our economy.? Who promoted and funded the wholesale globalisation of our manufacturing industries. Who finally got so greedy that they caused the whole thing to crash?

    Well you don't have to look too far - THE BANKS with the collusion of most Western governments.

  • Comment number 41.

    37

    "The public in general are starting to repay debts as opposed to incurring greater debt, so HAVE realised that the genie has to be put back in the bottle"

    Is that your OPINION or do you have some information to base this claim on. If so which sections of the population are repaying and by what % do the social groups differ?

  • Comment number 42.

    #37
    "What makes you say the government is encouraging more private debt?"

    =====================================================================

    A classic example is the rumoured adjustment to stamp duty.

    Good economics dictate that everything should be done to deflate house prices further - at least another 30%.

    Good monetary management dictates a rise in interest rates to around 5%.

    Unfortunately there is little 'political mileage' in good management.

  • Comment number 43.

    Kevinb,


    "Time to find your backbone Mr Cameron"

    Doesn't look likely if his performance at PMQs is anything to go by

  • Comment number 44.

    #37. Kevinb wrote:

    disagreeing with my assertion that private debt has caused the boom (and crash)

    Please read Irving Fisher on the debt and the need to deflate it as a cause of the 1930s depression.

    UK personal debt has tripled (to 1.5 Tn) since 1997 - interest rates are now 0.5 percent and were about 6 percent. This is totally unsustainable and has to be corrected. Check the economics please - see above, and by the way I have jest heard Ian Duncan Smith say the same thing.

  • Comment number 45.

    39

    With respect, I wouldn't touch the Daily Mail with a barge poll....

    If Greece is kicked out..Euro is finished

  • Comment number 46.

    40

    We won't agree on the finer points here

    To be honest, you will just blame the banks for absolutely everything, with I think is too simplistic

    Just because I have an overdraft, I don't have to rush to the bank and spend it

    I take the view that the economy has been mismanaged by the current government, and the bank support worsened this

    You seem to take the view that it is all down to banks

    Am I misrepresenting your view when I say that?

  • Comment number 47.

    42

    So you would raise interest rates to 5% immediately?

    Buying a house to live in is not a debt...it is the equivalent of paying rent, yet benefiting by not having to pay rent into retirement

    Not sure I understand why you object to that?

  • Comment number 48.

    What a great budget from a great socialist government.

    Deficit already coming down. Next years borrowing requirement reduced. Stage being nicely set for Euro membership towards the end of the next parliament.

    Dave and George Show - WeAreAllInnitTogetha/BladesOfAFetha - look like they have lost the election.

  • Comment number 49.

    43

    Now, you are hardly likely to ever give him credit for anything....are you?

    To be fair?

  • Comment number 50.

    44

    That doesn't really answer my point...never mind

    Thanks for the reply

  • Comment number 51.

    #46 kevinb,

    "You seem to take the view that it is all down to banks

    Am I misrepresenting your view when I say that?"

    The simple answer is YES. Individuals, households and Firms took on the debt and are therefore responsible. During the last 10years the UK public have relished the growing value of their houses, value the rising credit limits on their credit cards and then the 0% balance transfer offers as they 'maxed-out'. You may not have used your overdraft but millions did.

    But where did all the money come from? That's right the banks None of that binge could have happened if the banks did not engage in nigh-on immoral lending policies eg self declaration mortgages. At the same time they provided the funding for the globalised rape of the British economy.

    Now on top of that we have had an administration that 'whent with the flow'

    Sum total Britain can't shop anymore because the banks have lost loads of money. BTW the banks may appear to be fixing their balance sheets but they still haven't dealt with their sea of toxic assets.

  • Comment number 52.

    Hi,
    I heard something about business Rates help for small businesses. Can you explain what this was.
    Thanks
    Ron

 

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