Inquiring minds are looking across The Pond once again. A war has broken out on whether Britain has stopped hemorrhaging or not:
Wednesday’s CSR speech, while a compelling parliamentary occasion, told us little we didn’t already know. More seriously, the proposed fiscal retrenchment still looks inadequate, given the scale of the UK’s problem.
No one is denying that Britain’s Coalition government is about to implement a significant spending squeeze. The leaderships of both the Conservatives and the Liberal Democrats are now speaking openly about the UK’s chronic fiscal position and putting forward measures designed to address it.
To mention that the senior Coalition politicians involved in the CSR, until relatively recently, failed to challenge the grotesque spending habits of former chancellor and prime minister, Gordon Brown, the fiscal vandal who got the UK into this mess, may be construed as churlish.
There is plenty of blame to go around. As usual, it takes both sides to get into this much trouble:
The fact that the Tories, in particular, spoke such nonsense about fiscal policy for so long — pledging to match Brown’s deeply irresponsible plans pound-for-pound — means they need to show even more resolve now if they’re to convince the UK’s all-important creditors they really are serious.
Amidst all the talk of “axe-wielding” and “amputation”, let us not lose sight of where we are. In September, UK Government borrowing was £16.2bn — another record high. Despite the retrenchment rhetoric, the state borrowed more last month than in September 2009 — or any September ever — despite last January’s VAT rise from 15pc to 17.5pc. This revenue boost was blown away, though, by £2.3bn of debt interest payments last month, 152pc higher than the same month the year before.
Just how bad is the financial present and future of Great Britain? Well, they are worse off than when the IMF was called upon:
The 2010 budget deficit will be around 10pc of GDP — much more than when the UK went “cap-in-hand” to the International Monetary Fund (IMF) in 1976. That doesn’t include the multi-billion pound bank bailouts — which the Tories have buried off balance-sheet, like Labour before them.
So, the UK is in genuine fiscal peril. No wonder the Coalition has been spin-doctoring headlines about “pulling Britain back from the brink”. But while we face an unprecedented problem, are we responding with a suitably bold solution? Well, not so far — as the September borrowing numbers show. And not in the years to come, if you look at the CSR fine print.
In essence, all that George Osborne did on Wednesday was to confirm the current expenditure totals he set out in his Emergency Budget in June. To appeal to Britain’s middle-classes, the Chancellor claimed that by 2014-15, the UK’s welfare bill will rise by £7bn less than expected. Note, we are talking about a slower rate of increase, not a cut. Combining that notional gain with “savings” of £3.5bn elsewhere allowed Osborne to say his squeeze will be less severe than announced in June, with departmental expenditure £10.3bn higher than previously forecast by 2014-15.
So, France is in trumoil. Greece is lying in the gutter. Spain is trying to find someone young enough to still work. And Britain appears to be in free fall.
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