Budget commentary

Britain now faces the challenge of a massive overhang of public debt with public borrowing estimated to soar to £175bn in this financial year with a similar amount to be borrowed next year. Managing that debt involves a combination of tax increases and cuts in public expenditure. This task is not made easier by the fact that corporate and personal tax revenues fall in a recession while payments on unemployment benefits increases.

The Government is going to have to sell far more gilt-edged stock than anticipated and there are doubts about the ability of the market to absorb more than £200bn of gilts, particularly if international investors start to doubt the credibility of the UK economy. One of the ways of retaining that credibility is to show that the UK is fiscally responsible but what that means in practice is pain for UK taxpayers and users of public services.

The damage in terms of the toxic debts of the banks may be greater than the Treasury is allowing for. They have made provisions of up to £60bn for potential losses, but the International Monetary Fund thinks that it may be necessary to make provision for over twice the amount the Government is talking about, in the region of £130bn.

Much of the effort to cut public expenditure rests on ‘efficiency savings’ estimated at £15bn. These have been going on for some years anyway and it is questionable savings of this size can be made. Cutting bureaucracy may seem an attractive way of reducing public spending. But there is a point where it starts to affect citizens. For example, if HM Customs and Revenue are under staffed more mistakes may be made and it may take longer to sort them out.

Making the better off pay more taxes with the new 50 per cent rate and the 45 per cent rate starting this year is also politically attractive, but in reality it often raises very little revenue, particularly given that it is difficult to close off all routes for tax avoidance.

Motorists will be hit with the idea of above inflation rises in petrol duty coming back and the scheme to pay a bounty of £2,000 for scrapping cars over ten years old will only have a marginal effect on the beleaguered motor industry.

It should also be noted that all the Government’s plans rely on a rapid recovery in the economy which many analysts think is unlikely. It’s a hard path ahead.

Tradition and modernity

That mixture is always present in British politics. I was in the House of Lords yesterday and an official resplendent in his scarlet uniform swept past on a motability scooter, doffing his top hat to my companion and saying, 'Good day, my lord'. But in the restaurant they were serving iced coffee. I had tea and crumpets which were excellent.

Pre-Budget analysis

Read my analysis here: Budget

Tribute to Sir Clement Freud

I am going to interrupt the suspension of this blog to pay tribute to Sir Clement Freud who for 14 years was the Liberal MP for the Isle of Ely and then the more bureaucratic sounding North-East Cambridgeshire, having initially won the seat in a by-election.

The lugubrious Sir Clement did not make a great impact on the House of Commons where, despite his work on freedom of information, he was not taken sufficiently seriously. The Liberals were more of a minority party than they are now and he was perhaps best known for his dog food adverts. As happens in such cases, the adverts are remembered and the product ('Minced Morsels') has been forgotten.

In order to secure his hold on the constituency, Sir Clement used to trawl the births, deaths and marriages announcements in the local press and send an appropriate letter of congratulation or commiseration. People would then approach him in the street afterwards to thank him. As he did not know which letter they received, he would reply enigmatically, 'It was the least I could do.'

The bon viveur Sir Clement was one of the last of a generation of maverick MPs, although I suppose the few independents in the House might fit that bill. These days there are two factories in Cheshire which turn out identikit MPs wearing well tailored suits and discreet ties. One factory produces Conservative MPs and the other Labour, but it is often difficult to tell the difference.

It's goodbye from him

I've enjoyed writing this blog, but given the other demands on my time, it hasn't been getting the level of hits that would justify its continuation. My blog on the Common Agricultural Policy attracts four to five times as many visits!

I have only suspended the blog and might return during the general election next year to follow the campaign in the marginal seat of Warwick and Leamington. It is currently held by one time junior minister James Plaskitt with a wafer thin majority, although he will benefit from redistricting.

He is being challenged by the second time by Chris White for the Conservatives. Clearly a smart cookie, the cerebal and dynamic White could match the political career of a former incumbent. It was once known as the Garden of Eden after Sir Anthony Eden.

Some final thoughts:
1. We have a real crisis of confidence in the political class and the political process - see the latest issue of British Politics.
2. The populist right is on the rise and we can expect to see BNP gains in the European elections. The latest issue of British Politics has an interesting article on the BNP in Burnley which shows how they benefitted from the failures of a complacent Labour council.
3. We are seeing a resurgence of the belief that politicians and bureaucrats are better at allocating resources than consumers in markets.