March 12, 2008
Prozac Nation?
What to make of Alistair Darling and his sunny forecasts? It takes an exceptional orator to combine such dour delivery with such optimistic content.
Last time I looked, the stock market had collapsed by about 15 per cent, house prices had fallen four months in a row and mortgage applications had slumped.
But the Chancellor of the Exchequer still takes a rose-tinted view of how things are going. To hear him in his first Budget today, it was almost as if he was discussing another country; and I don’t mean Scotland.
“Uniquely placed to succeed in the global economy,” he droned. “Better placed than any other global economy….pre-eminent world financial centre…”
You could be forgiven for thinking that Great Britain was a fortress and every other country - in the US, Europe, Asia - were mere sandcastles, reduced to nothing by a few sub-prime waves.
Page 149 of the Red Book has more of this: “Box 4: Resilience of the UK economy” describes the ”improved resilience” of Britain and how it survived the Asian crisis of 1997, the Russian debt crisis of 1998, the terrorist attacks of 9/11, etc (all of which happened to other countries).
“The UK (was) estimated to have been the most resilient of the economies studied in the latter period (of 1994-2005),” it said.
Mocking Mr Darling’s confidence may be dangerous, given that the Treasury has beaten most economic forecasters since Labour came to power in 1997.
But why the apparent complacency about the UK housing market, where plenty of “sub-prime” lending has been going on unchecked in recent years?
Another weighty document published today by the Treasury - “Housing Finance Review: analysis and proposals” - makes for a rather serious read. Though lacking in sensationalism, it spells out the consequences of the credit crunch for Britain’s mortgage market. Answer: very bad.
Page 61 has an illuminating chart which shows typical lending rates in different countries around the world. Loan to value ratios range from 55 per cent in Italy, 67 per cent in France and 65 per cent in Canada to - at the most extreme - 80 per cent in two countries.
Can you guess which?
The US (where falling house prices have sparked a global panic). And the UK.
The small print of the Red Book does have a few signals about what the government really thinks. It expects revenues from stamp duty, capital gains and inheritance tax all in the next financial year, partly thanks to “sluggish or flat house price growth”. The fact that it is lifting its borrowing targets is another clue.
This past week, the Chancellor Alistair Darling delivered his first budget, prompting what can only be described as a lacklustre response. Financially cautious with limited social engineering intentions, it aimed to be a budget that halfway nodded towards the preoccupations of the moment.
These include green levies, such as the “aim” to levy a charge on plastic bags. Fuel tax manipulation has been put on hold, with an acknowledgement of $110 oil having pushed petrol prices to an already recent high. On Growth, the forecast for this year has been lowered to between 1.75 and 2.25 per cent. On Inflation, recent fuel and energy prices will stoke inflation during 2008, though he predicts a return to target (Target - 2%), by 2009.
On Public Spending: to grow by 2.2 per cent in the next three years. On business, an interesting aim: target for small and medium-sized businesses to win 30 per cent of public sector contracts in the next five years. On Tax - new charge (anticipated at £30,000) on non-domiciled residents to be introduced from April and to remain in place for present and the next parliament. Beer duty to increase by 4p per pint, wine up 14p a bottle, cider up 3p a bottle and spirits up 55p a bottle. This could put the price of a pint in a typical pub, up by 12-15p, once VAT and margins accounted for - and the price of a bottle of spirits by 80p in a supermarket. These are significant increases and reflect growing Parliamentary acknowledgment of the need to “do something” to halt the permissive and pervasive attitude to drink in this country. Campaigners are not convinced that the tax system is the mechanism for achieving this change.
Tobacco duty to rise tonight by 11p per packet of 20 cigarettes and 4p for five cigars.
Supporting Budget 2008 documentation can be obtained from the UK Treasury’s own site at http://www.hm-treasury.gov.uk/budget/budget_08/documents/bud_bud08_docsindex.cfm
I would argue that this is a profoundly flat budget, short on ideas, limited in scope and desperate for inspiration. Financially it states that extra revenue gleaned through additions to Duty will be re-directed to pulling more poor children out of the definition of poverty. Raising Child Benefit to £20 for the first child being the chief means of achieving this end, coupled with micro measures such as adjusting Child Tax Credits. These, however, are small beer and seem if anything, to be the tired and heavy breathing of a Government in much need of the recuperation of Opposition.
Posted by: Damian Merciar | March 17th, 2008 at 1:17 pm | Report this comment