Beginning of the end for the coalition?

[Funky_Gibbon]

The whole world HAS NOT been in recession, not even all of the EU nations went into recession while countries like Australia maintained good growth.

 

The only reason they narrowly avoided going into recession (0.4% growth after a quarter of contraction isn't good growth) was because they had a budget surplus before it hit, they plowing huge sums of public money into economic stimulus which has left them with a record budget deficit and because they supply China with iron ore and agricultural commodities and their demand rose at just the right time.

 

Face facts. Barring a few countries with economic make-ups that were beneficial in avoiding a recession caused by the financial industry (Poland being the only EU country to avoid it), pretty much the whole of the developed world and a fair number of third world countries have all been in recession.

[Funky_Gibbon]

Scraping the quangos is the best idea they've had. Good to see another one gone:

 

http://news.bbc.co.uk/1/hi/education/10314055.stm

 

That's a scheme not a quango.

[Rupert_Baehr]

The OBR report commissioned by the Tories has forecasts for this term roughly in line with those in Alistair Darlings budget. It's head, Alan Budd stressed that the economy was not broken and that, as we were now in a state of recovery, then growth would continue to rise, just a little bit slower.

He shied away from answering questions about how the proposed cuts would affect his figures, but promised to review them after the budget. This will be interesting as all forecasters, and the Bank of England accepts that large cuts and increased unemployment will slow down growth and may even reverse it (they can't rule it out).

 

Alistair Darling was planning to reduce the Budget Deficit by 50% in 5 years.

 

He had no plan to stop spending more than he earned. - Not ever.

 

He wasn't talking about repaying any of the money he had borrowed. - Not ever.

 

He was merely talking about reducing the amount he overspent each year by 50% in 5 years.

 

Over the years, I've heard many people say: "We spend too much money on defence, the defence budget could be spent far better elsewhere." (I'm not going to get into that here. )

 

If Darling had had is way, then in 5 years time the interest payment alone on the money he would have borrowed would have been more than the current defence budget. And you would still have been spending money on defence.

 

Could the interest on the money Darling intended to borrow not have been spent better elsewhere?

 

Now if you've got a mountain to climb would you rather take the risky option of climbing the face with very little equipment just so you can get to the summit quicker (if you don't die in the process), or do you take the winding mountain path which may take longer but will still get to the same place a lot less painfully.

 

Choosing the more gentle route is a good idea if you're sure that you are going to be able to get to the top of the mountain (and back down again) before the weather turns really nasty. If that happens, you can also die.

 

Greece got in a real mess recently. Fortunately for the Greeks, they have the whole of the Eurozone to bail them out.

 

Some people say that the UK is in a worse financial state than Greece. (It made me laugh when people - on this forum and elsewhere - were saying: "Don't expect the Brits to help bail out the Greeks!". I don't for one moment think anybody did do that. How could the Brits bail out anybody? - They don't have enough money to pay their own way; let alone pay for the Greeks:gag:.

 

If the rest of the world (or at least the bit which is going to be required to lend money to the Brits) decides that 'Sound as a Pound' is a real joke, then who is going to bail out the Brits? - The Sterling Zone isn't very big, is it? The country will have to go to the IMF.

 

If those who are expected to buy British Government Debt lose faith in it, then that loss of faith will translate into increased borrowing costs. (I don't follow those - I haven't got enough money to buy British Bonds [or anybody else's, for that matter] but I heard a few weeks ago that the buyers were requiring the British Government (the sellers) to insure the bonds. - In effect, that increases the cost of borrowing.

 

And the British government is borrowing far too much.

 

It's inconceivable that the rest of the world would simply write off the UK ... well, at the moment it's inconceivable. Unfortunately, however, if the government can't persuade foreign investors to buy British debt by demonstrating that they are prepared to make significant cuts and to do so immediately (even if those cuts themselves should slow down the recovery) then the only other way they can persuade the investors to part with their money would be to offer very attractive long-term interest rates.

 

'Saddling our children, their children and their children too' with huge amounts of debt. - Unless, of course, they move elsewhere.

[Berberis]

The only reason they narrowly avoided going into recession (0.4% growth after a quarter of contraction isn't good growth) was because they had a budget surplus before it hit, they plowing huge sums of public money into economic stimulus which has left them with a record budget deficit and because they supply China with iron ore and agricultural commodities and their demand rose at just the right time.

 

Face facts. Barring a few countries with economic make-ups that were beneficial in avoiding a recession caused by the financial industry (Poland being the only EU country to avoid it), pretty much the whole of the developed world and a fair number of third world countries have all been in recession.

 

The australian economy was almost completely unaffected by the recession. If you dont beleive me, have a look for yourself:

 

Australia GDP Growth Rate: Jan 06 - June 10

http://www.tradingeconomics.com/Economics/GDP-Growth.aspx?Symbol=AUD

 

Compare that to some others:

 

Canada: http://www.tradingeconomics.com/Economics/GDP-Growth.aspx?Symbol=CAD

US: http://www.tradingeconomics.com/Economics/GDP-Growth.aspx?Symbol=USD

France: http://www.tradingeconomics.com/Economics/GDP-Growth.aspx?Symbol=FRF

Germany: http://www.tradingeconomics.com/Economics/GDP-Growth.aspx?Symbol=DEM

UK: http://www.tradingeconomics.com/Economics/GDP-Growth.aspx?Symbol=GBP

 

What do you see when comparing the UK with other countries? Longer recession in the UK. Even the likes of Italy emerged from recession before the UK!

 

In regards to Australia, what you are really saying is they played to their strengths and where lucky .. Well if that’s your only evidence for disregarding a strong economy that makes our own look like a shambles, then more the fool you.

[Bedders]

The banking crisis would have happened regardless of who was in power!

 

The Labour government had some really good ideas & put some really good policies forward. The only problem with them is that they cost too much!

The problem with the Tories is that they don't have ANY good ideas!

 

What like deciding to have a scrap with the muslim world under the disguise of weapons of mass destrucion (that didn't really exist), and then not ensuring they'd got the correct kit to do it. The 'party of cuts', as you lunatic lefties like to call them, has reviewed the budget & increased it! Hows that work then?

[Gordonb]

Maybe MJ Scuba is correct in post 20 when he says we are at the end of the beginning.

Strikes me that a lot of people have had enough of the same old Labour / Tory ****-ups and perhaps the current coalition is the safest way forward in the current financial climate. Of course they will lie they always will that's what politics is all about

[Wildcat]

The whole world HAS NOT been in recession, not even all of the EU nations went into recession while countries like Australia maintained good growth.

 

Maybe if didn’t have a Labour government we would not have been one of the first to enter recession and the last to leave.

 

Maybe if we had Tory policies that saw Iceland as a shining example of deregulated capitalism outside the EU we would have seen all our banks fail?

[studentbob]

Alistair Darling was planning to reduce the Budget Deficit by 50% in 5 years.

 

He had no plan to stop spending more than he earned. - Not ever.

 

He wasn't talking about repaying any of the money he had borrowed. - Not ever.

 

He was merely talking about reducing the amount he overspent each year by 50% in 5 years.

 

Over the years, I've heard many people say: "We spend too much money on defence, the defence budget could be spent far better elsewhere." (I'm not going to get into that here. )

 

If Darling had had is way, then in 5 years time the interest payment alone on the money he would have borrowed would have been more than the current defence budget. And you would still have been spending money on defence.

 

Could the interest on the money Darling intended to borrow not have been spent better elsewhere?

 

 

 

Choosing the more gentle route is a good idea if you're sure that you are going to be able to get to the top of the mountain (and back down again) before the weather turns really nasty. If that happens, you can also die.

 

Greece got in a real mess recently. Fortunately for the Greeks, they have the whole of the Eurozone to bail them out.

 

Some people say that the UK is in a worse financial state than Greece. (It made me laugh when people - on this forum and elsewhere - were saying: "Don't expect the Brits to help bail out the Greeks!". I don't for one moment think anybody did do that. How could the Brits bail out anybody? - They don't have enough money to pay their own way; let alone pay for the Greeks:gag:.

 

If the rest of the world (or at least the bit which is going to be required to lend money to the Brits) decides that 'Sound as a Pound' is a real joke, then who is going to bail out the Brits? - The Sterling Zone isn't very big, is it? The country will have to go to the IMF.

 

If those who are expected to buy British Government Debt lose faith in it, then that loss of faith will translate into increased borrowing costs. (I don't follow those - I haven't got enough money to buy British Bonds [or anybody else's, for that matter] but I heard a few weeks ago that the buyers were requiring the British Government (the sellers) to insure the bonds. - In effect, that increases the cost of borrowing.

 

And the British government is borrowing far too much.

 

It's inconceivable that the rest of the world would simply write off the UK ... well, at the moment it's inconceivable. Unfortunately, however, if the government can't persuade foreign investors to buy British debt by demonstrating that they are prepared to make significant cuts and to do so immediately (even if those cuts themselves should slow down the recovery) then the only other way they can persuade the investors to part with their money would be to offer very attractive long-term interest rates.

 

'Saddling our children, their children and their children too' with huge amounts of debt. - Unless, of course, they move elsewhere.

 

I agree, uncertainty is a problem, which is why I believe the main focus of the government should be economic growth. Yes cut spending, but not at a time or level that would jeopardise the recovery.

I haven't read the OBR report in full, but I don't recall any of it's authors drawing any comparisons between Greece and the UK. The only time we heard that was the scaremongering during the election campaign.

Given that the draconian cuts that are to be introduced across the Euro zone will undoubtedly have a negative effect on UK growth wouldn't it be a safer bet to guarantee that the recovery has the best possible chance of sustaining itself allowing the UK economy to progress at a rate that would be attractive to long term investors.

 

The national debt will be relatively large for the next decade or so regardless of which policies are followed or which cuts are made. This does not mean that the economy cannot function normally. As the Tory appointed OBR stated "we are not Greece".

 

(found the link now)

 

http://www.ft.com/cms/s/0/ae004fc8-77ef-11df-82c3-00144feabdc0.html?ftcamp=rss

 

What I think is a more important question in the long term is how our political leaders deal with the inevitable rise in inflation. It requires a lot more reading on my part on how would be best to tackle it, without resorting to the policies followed by Mrs Thatcher, but I would genuinly welcome your thoughts on this area.

[Rupert_Baehr]

I agree, uncertainty is a problem, which is why I believe the main focus of the government should be economic growth. Yes cut spending, but not at a time or level that would jeopardise the recovery.

I haven't read the OBR report in full, but I don't recall any of it's authors drawing any comparisons between Greece and the UK. The only time we heard that was the scaremongering during the election campaign.

Given that the draconian cuts that are to be introduced across the Euro zone will undoubtedly have a negative effect on UK growth wouldn't it be a safer bet to guarantee that the recovery has the best possible chance of sustaining itself allowing the UK economy to progress at a rate that would be attractive to long term investors.

 

The national debt will be relatively large for the next decade or so regardless of which policies are followed or which cuts are made. This does not mean that the economy cannot function normally. As the Tory appointed OBR stated "we are not Greece".

 

(found the link now)

 

http://www.ft.com/cms/s/0/ae004fc8-77ef-11df-82c3-00144feabdc0.html?ftcamp=rss

 

What I think is a more important question in the long term is how our political leaders deal with the inevitable rise in inflation. It requires a lot more reading on my part on how would be best to tackle it, without resorting to the policies followed by Mrs Thatcher, but I would genuinly welcome your thoughts on this area.

 

Thanks for the link. Notwithstanding that the manufacturing sector in the UK is far smaller than it used to be, the UK (unlike Greece) is still a significant manufacturer. I'm not sure that Greece should be considered alone, however. - Unless the members of the Eurozone are prepared to expel countries which don't comply with the fiscal rules, Greece (and any other countries which follow the fiscal practices of Greece) will be able to rely on the more prudent countries to bail them out. The UK doesn't have any other Sterling Zone 'White Knights'.

 

Belt-tightening within the EU is going to reduce UK exports, but I wouldn't be too surprised to see the EU increase the taxes it levies on goods imported into Europe. - That won't be popular with non-EU countries, but it may still happen.

 

Inflation - particularly should we see inflation on the scale of the 1970s - would be a serious problem. I bought my first house - a 4-bed house with half an acre of land in North Lincs in 1976 for £22,500. I bought a 1/3 share and I had a £7,500 mortgage. - My friends thought I was mad to take out such a huge mortgage, though it was about 3 times my salary.

 

Repayments were difficult, but along came inflation and reduced the 'real' cost of my mortgage dramatically. - It didn't make me any the richer however, because the interest on the mortgage increased, house prices went up and my next house - a two-up two down end terrace which I bought in 1980 - cost me more than the first. (That house was back on the market in 2001 [i was looking for a house in the area] and it was offered for sale for £240,000 - rather more than '3 times my salary' and 10.5 times what I'd paid for it 20 years earlier.)

 

Inflation in the 70's may have been a large part of the cause of the high levels of personal debt. The total UK personal debt in April 2010 was £1,460 Billion - even more than the government owes. Each household owes an average of £57,915 (including mortgages.) Those who don't have mortgages owe an average of £18,252. Inflation is currently running at 5.3%, so those living on fixed incomes will soon start feeling the pinch.

 

The apparent gain caused by inflation - a reduction in the value of the amount owed - is an illusion. Those with large mortgages are likely to see their interest payments soar to beyonf affordable levels and to see their houses re-possessed when they can't afford to keep up with the payments.

 

A property in the UK is repossessed every 13.4 minutes and someone will be declared insolvent or bankrupt every 51 seconds.

 

As inflation increases, interest rates are likely to increase. - Foreign investors (the people the government is hoping to borrow money from) aren't going to be too happy about getting paid back less than they lend. - We've already seen bond purchasers demanding that the British Government insure its loans. - The premiums for that insurance will add to the cost of borrowing money.

 

The value of the Pound will decrease - exporting goods should become easier, but imports will cost more.

 

Those imports include much of the raw materials used in manufacture, oil (and most things move by road, rail air or sea) and 40% of the food consumed in the UK.

 

The government intends to reduce the deficit.

 

There are 3 things it can do:

 

1. Reduce public spending.

2. Increase taxation

3. Increase economic output - thus increasing tax receipts.

 

Keynes argued that the government has an obligation to ensure that as many people as possible are in employment. That may be so, but unless you operate a closed economy there are limits. You can't just keep on increasing the size of the public sector and expect a shrinking (in comparison) private sector to fund it. Public sector employees pay taxes just like everybody else, but their pay has to come from somewhere. In a balanced economy it would come from the private sector. For far too long, it has come from borrowed money.

 

Ideally - if people actually had the money to pay for the things they bought - the government could rely heavily on increases in income tax to improve tax revenues. Unfortunately, the idea of 'saving up to buy something' doesn't seem to count for much anymore. If the government increase income tax then although people will moan about it, they will probably just borrow more.

 

The alternative is for the government to introduce higher rates of consumption taxes. The UK no longer has 'purchase tax' (which could be targetted fairly accurately) and instead, relies on VAT. VAT is indeed a consumption tax, but if it is charged on labour as well as on materials, then it's a tax on jobs.

 

It's also a tax on tax. If I employ you to dig my garden, I will be paying for your labour. (I'll provide the spade.) Not only do I have to pay you extra to cover the income tax you will have to pay on the money you earn (fair enough), I will have to pay VAT on the money you are allowed to keep and I will pay VAT on the income tax you pay. Why should anybody pay tax on tax?

 

I suspect there will be an increase of VAT - 20% is comparable to the VAT charged in many European countries, though it can be as high as 25.5% in some.

 

Although certain items are Zero-rated in the UK, their price is likely to go up if VAT is increased, because the cost of transporting and warehousing them will rise.