Friday, 21 November 2008

It's game-on for Monday

Rumours are that there's a furious battle going on between Treasury mandarins and Downing Street. I'd imagine this is a battle of proxies; the Treasury pushing the inept and reluctant Darling into the line, and Brown's resolve having to be stiffened by continual assurances from Mandy and Campbell. What's at stake is whether Monday's announcement sees a U-turn by Brown, or deep and potentially irreparable damage to the UK economy.

The FT sets out the position this morning; a budget deficit that could go as high as 9% of GDP, three times the EU's limit, and 'official' public sector spending that could reach 60% of national income, not only way above Brown's target 40% but unthinkable in peacetime. Most of you will recall that Thatcher managed to reduce this to 35% by 1989, needing only a modest rise to 41% to meet the recession of the mid nineties.

If Darling doesn't announce either deferred tax rises or real public spending cuts on Monday, the market's loss of confidence and the pressure on the pound will make the position much worse very quickly. If he does announce them, he will have proved Cameron right.

And that's the argument that will be played out this weekend. It will also be the best indicator of whether we're going to have an election early in 2009; no tax increase announcements from Darling, and the country's returning officers can start dusting-off the ballot boxes.

Darling will try to use the nation's hatred of the banks to deflect headlines on Monday, but this too will damage the economy. Hate them or hate them, the banks are central to our economic well-being.

It's game on.

4 comments:

Blue Eyes said...

I am fed up with commentators and the left perpetuating this idea that there is some button that can be pressed to get out of this mess. Someone has to pay, and by destroying the currency he is likely to shake "capitalism" to the very core. Oh, now I see the plan.

Nick von Mises said...

So economic reality is mugging NuLab's pandering. Oh dear.

Anonymous said...

BE - someone has to pay.

Indeed.

And guess who it will be?

Clue - not those who have no money of their own.

Bill Quango MP said...

A good prediction. Monday could see us looking at the 1930's again. After 2010 naturally.