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PBR: Toto - we're not in Kansas anymore...

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Paul Mason | 11:06 UK time, Wednesday, 9 December 2009

With an hour to go until Alistiair Darling delivers the PBR, it is clear that on many fronts British politics and economics are moving onto unknown territory.

Moody's threat yesterday to downgrade the UK's sovereign debt set some of the mood music: we are looking at a man who has to convince the bond markets he does not intend to let inflation whittle away the profits on the money they are lending him.

On bonuses, though small, the ideological impact is significant. Those who were treated as heretics in Cabinet for suggesting a cap on bonuses are basking in the new orthodoxy this morning. Not only will there be a bonus supertax - and you can tell it is significant because bonuses have suddenly become an emotive issue for bankers: there will be outline proposals for a Tobin Tax and a permanent levy or insurance programme for banks to pay into. This is all driven by Andrew Haldane's thinkpiece about reversing the power balance between state and finance. Only months ago Darling and Brown believed global, market-based (ie capital adequacy) solutions were the way forward: now they seem to have moved beyond the G20 consensus (remember the Tobin Tax was only inserted at the last moment as "a discussion" in the Pittsburgh declaration). Again - new territory.

For taxpayers and public servants the new territory is scary. If, as the FT has calculated, the decision to ringfence "hospitals, schools and police" (note - not the NHS, Education and the Home Office) leads to 14% cuts elsewhere then it is goodbye aircraft carriers (or hello aircraft carriers for India); goodbye F35 fighters, goodbye comprehensive elderly care; collect your own rubbish, sweep your own streets. At least there will be fewer traffic jams on the motorways because forget road maintenance as well.

A public sector pay freeze, severe headcount cuts in the back office of nearly every public service.

This is the moment people have to decide not whether they accept the scale of budget cuts, but on whether Darling's timing of them is credible, and whether they can stand being systematically denied concrete information about the cuts plans before the election.

Finally, Labour is revving up for the mother of all rhetorical swings to the left. Led by Gordon and Alistair? As Judy Garland famously announced to her dog after they'd landed in the technicolour land of Oz: Toto - We're not in Kansas anymore.


  • Comment number 1.

    Paul, see total managed expenditure outturns for 08/09 just published by Treasury - public sector debt interest running at £31.6 billions pa and running, health at £209 billions pa and running, social protection payments at £203 billions pa and running - total £618 billions pa and running - the cash bank bail out at £117 odd billions must be in there but cant see it, maybe because it falls after April 09 - suppose you need to add the total £850 billions in risk exposure to banks under insurances and liquidity backups....anyone got an aspirin?

  • Comment number 2.

    Correction , health running at c. £110 billions pa and running- 2 should have been 1

  • Comment number 3.

    Paul - if you see the state of the roads where I live, you would think that they gave up trying to maintain the roads a couple of years ago. There are not many soft targets available to cut expenditure. Almost all of the expenditure (other than perhaps capex schemes such as dropping identity cards or aircraft carriers) are going to really hurt. It is not beyond the realms that we start selling off existing road networks to private enterprises in the next few years. They will maintain the broads, we will pay them tolls.

  • Comment number 4.

    tobin tax is a stupid tax on trading not profits. its like saying everytime you go into a shop you will be taxed regardless of if you buy anything. the result? people will stop going into shops unless they really have to.

    talk about a dangerous stupidity at the heart of govt.

    tax profit not trading. not every trade gets a profit.

  • Comment number 5.

    Toto - We're not in Kansas anymore.

    I think the following film quote would be more apt from a misguided general in Apocalypse Now.

    '' I love the smell of burning napalm in the morning, it smells like victory''

    How did that all end again?

    I think I did quite well with my predictions on your previous post, just swap the 20% vat for national insurance hike and I would be 100% correct and I dont even have any political or economic connections. My predictions were only based on assuming labour would base all its strategy on the following assumptions:

    a) the population is stupid.

    b) labour is clever and can manipulate the populations sentiment by a heady mix of media manipulation and carefully designed policy announcements in order to save its self

    c) Do just enough to avoid a downgrade

    They must be very pleased with themselves.

    It is ashame non of the above is motivated by what is in the best interests of the country.

  • Comment number 6.

    And the lyrics also fit staright in with blog

  • Comment number 7.

    JERICO #5

    "It is ashame non of the above is motivated by what is in the best interests of the country."


  • Comment number 8.

    Osbourne finally states in Parliament that much of this madness was the result of ridiculous amounts of lending for ridiculously priced houses - which still have not crashed in the UK despite halving in the US, in Spain, in Holland and in Eire. Vince the Cable then stands up and more or less says the same thing.

    Thank goodness we have the unbiased Halifax and Nationwide to save us all by telling us that house prices are rising again. No industry is needed, no high-tech IT skills, nothing other than house prices and banking is all the country needs. Yippee!

    The madness will continue, there will still be honey for tea, for now, and no sovereign debt crisis for the UK in 2010! Believe that and you will believe anything.

    There is a storm coming.

  • Comment number 9.

    Just read UK’s PBR. Hardly surprising. Back in 2008, in my country, I got a visit from the local stock exchange officials to discuss our company’s annual report for the financial year-ending June 08. Our company is a small cap shares trading in the over-the-counter market. Essentially, these officials thought that our annual report was rather parsimonious in information. And they went on and on about how to improve and upgrade it above the bare minimal standards. They even mentioned the local big banks’ annual reports as being exemplary.
    We told them that that there is no compelling reason for us to emulate the banks’ financial exhibitionism. Why should we give our competitors’ information for analysis? Or for short-sellers to make a mess of our company’s valuation. If, the regulatory officials cannot make sense of the banks’ ‘below the line’ balance sheet items and yet see fit to save them from defaults. Then for what purpose is there for us to reveal and tell more to our detriment. The government will not save us if we go bust. They countered shareholders do not like surprises. We responded that as far as we are concerned, on the day of initial public offering, shareholders bought our shares with eyes open. And if they don’t like what they see, they are free to sell-out, notwithstanding the information stream being scanty or not. Since then, we heard nothing from them.
    During the pre-financial crisis period, nobody in authority could figure out or care what the banks were doing despite the so-called available public information. Today in this traumatic time, less information forthcoming means more tranquillity. And all news will be managed as good or neutral news.

  • Comment number 10.

    #4 Jauntycyclist

    "talk about a dangerous stupidity at the heart of govt."

    This is a very Taxing question:

    Other industries pay tax (VAT) when they sell their (REAL) goods. Why is the finance sector exempt from a transaction tax? Is it because their transactions do not really involve any real economic productivity? If the trades aren't productive, then how come they can make a "profit" in their annual accounts?

  • Comment number 11.

    In short the money has run out. Not so much the Enlightenment but the Darien Disaster.

    I wish this was Kansas as there at least we could be sure of getting something to eat.

    Are we going to end up in Weimar or in Paris? Or is it time to awaken the original New Model from its long sleep among the farms, hamlets and villages of old England? Some ranting, levelling and digging would not go amiss.

  • Comment number 12.

    ...Other industries pay tax (VAT) when they sell their (REAL) goods...

    that is to misunderstand how the financial market works.

    if you buy 1000 shares at 1.00 because you believe the market will go up they say you should pay a tax on that transaction even though you have not made a profit yet.

    there is no guarantee their will be a profit.

    now the price has gone down to 50p and you are forced to sell [for whatever reason]. this they also want to tax.

    so you not only made no profit but where taxed twice on the loss.

    name anyone else taxed on losses. tesco? news international? no one is taxed on losses.

    there should be a tax on profit but not on mere transactions that have not yet yielded a profit. for there to be a profit there must be two transactions.

    such a tax will just drive people out the market and so dry it up so no firms can get liquidity to invest.

    so its a brilliant plan if you want to trash the markets.

  • Comment number 13.

    10 & 12

    Vat is paid by the end consumer and passed onto the treasury - the business simply acts as an unpaid tax collector .The producer deducts all the input vat incurred in bringing the product or service to market.

    Share purchases are already subject to stamp duty - and every share sale necessitates a counter party buyer.

    The notable absence from the "Bonus, boilers and bingo budget" is any form of levy on financial industry to cover the 'free' insurance provided by tax payers of the host nation, let alone any form of vision for a reformed, rebalanced economy.

  • Comment number 14.

    As far is the PBR and the prospects for the next few years is concerned lie back and think of Ireland. I feel better already. Our emerald cousins will provide an opportunity to study the application of 30's balance sheet mentality to a modern economy. Reducing unemployment benefit - that's incredible!

  • Comment number 15.


    yes transactions are already taxed so more taxation on mere transactions rather than profits will reduce transactions.

    the insurance should be the 'regulations' that prevent 'too big to fail' firms existing in the first place. which what they refuse to do.

    the failure point were the regulations. so of course their solution is to ignore what caused the failure and do tax. as if that will stop it happening again if the regulations are not fixed.

    its like their answer to climate change is 'carbon tax'.

    or if there were no regulations on the motorway and smash ups kept happening their answer would be to tax everyone using the motorway to 'clean up the mess'. when the real answer is regulations to stop the smash ups in the first place.

    its just a tax mentality to avoid the real reason why things go wrong.

    [unlike shares forex is not a zero sum game- central banks pump money in they have invented]

  • Comment number 16.

    I have a feeling we are not in Kansas anymore ...............

    if you like unravelling symbolism then :

    if you prefer serendipity then:

  • Comment number 17.

    The wonders of QE national accounting need to be explained in the PBR. Is it the case that the growth projection used has been enhanced by the fact that the additional QE boost since the budget ( £50 billions) has been plumbed in? Then, £50 billions / 3.5%GDP of estimated financial sector unrealised losses for 08/09 plus subsequent years has been shipped out? Is this a £100 billion accounting adjustment? No wonder there are smiles at Number 11, if so. Can anyone explain.

  • Comment number 18.


    I agree, we should start by understanding why things have been going wrong, and, where appropriate tackle it (usually through regulation or taxation).

    At face value your example of buying and selling of stocks seems to render a transaction tax on buying and selling stock as preposterous. However, when viewed at the total level of overall economic behaviour, this form of wealth creation is spurious and pernicious.

    Our difference of opinion could be that I surmise that the underlying causes of the crisis can clearly be traced back to the fundamentals of the finance sector. The following poster puts it quite well:

    Paul's blog of August highlights that Lord Turner was concerned about distinguishing between valuable financial innovation and non-valuable. Certainly some products are more pernicious than others (for instance High Frequency Trading, Naked Short Selling, Collateralised Debt Obligations).

    Now, even Paul Volcker is taking a firm stance against the inherent presumption that finance adds value to society (see my post 26 on the previous blog):

    "The former US Federal Reserve chairman told an audience that included some of the world's most senior financiers that their industry's 'single most important' contribution in the last 25 years has been automatic telling machines, which he said had at least proved 'useful'."

    As you say about a Tobin tax "so its a brilliant plan if you want to trash the markets" – this is true in part, but rather than trash them, this should be about taming them. They have strayed into dangerous waters and they need reigning in. This is no different to the issues occurring in the 1800s:

    The upshot is that such a tax is a (blunt, but necessary) mechanism for ensuring that society is in fact doing the right things for long term stability.

  • Comment number 19.

    'Labour is revving up for the mother of all rhetorical swings to the left'.

    Yeah right - 'rhetorical'

    Actual left? Brown wouldnt know which way that was.

    The squeezing of poorer people out of education - as delineated by the grinning ape Liam Byrne - is fundamentally antithetical to 'left'

    (I am focussing on education, not 'Universities as businesses', which is what they have become).


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