The Pre-Budget Review in the UK is a fiasco.
The policy measures announced are either pointless- the change in the Bingo levy, for goodness sakes- or dangerous- the increase in National Insurance. There is much rhetoric about cuts, no actual delivery. Even the "Banker's Bonus Tax" will raise nothing, and, by the way, similar measures were abandoned in both France and Germany (neither exactly "the Bankers Friend"), because they were thought to be unconstitutional. Taxes are supposed to be levied on the general population, if you start levying specific taxes, how long can it be before they become arbitrary, populist attacks on the chosen "people's enemy" of the day. Oh, wait a minute...
The real terror of this PBR, however, is in the detailed numbers on the economy.
When the UK stayed unexpectedly in recession last quarter, we were told that this was probably just "technical", and that the economy would be shown to have actually emerged from recession with later revisions of the numbers. What Mr. Darling's announcements show is that despite all of the huge increases in liquidity, the UK is still in recession- and one that is deeper than we had previously thought. Meanwhile, as my friend Mark Bathgate notes in the Spectator Coffee House blog, the debt numbers that were announced were not the complete picture. Mr. Darling suggested that the ultimate cost of the bank bail-out would be only around £10 billion- which looks like pure wishful thinking in the face of the hundreds of billions that have -so far- been required to prop up the system. The announced debt numbers are therefore based on a pinch of fairy dust rather than any realistic assessment of the crisis.
The determination of the government to hand out a few paltry goodies to their core voters is simply contemptible. The crisis is so severe that Draconian cuts across the board are going to have to be made. Of course that is before we take into account the unfunded public sector pension liabilities that already total 50% of GDP. There is no comfort zone, no safety, anywhere in the UK economy.
Over the past four years, this blog has discussed the approaching economic crisis. Now, I fear that over the course of the next six months, London is set to become ground zero of a fundamental, systemic challenge that will blow away any remaining illusions about the staggering decline of the United Kingdom. From the first and largest economy in the world we may well have fallen to somewhere in the teens before this next decade is out.
The chickens are coming home to roost: taking soft options, imposing little or no financial discipline, turning a blind eye to incompetence, the greed of speculators, poor industrial management, Kremlin funded trade unions, civil servants building empires that would make "Sir Humphrey" blush, all have had their part to play in this sorry tale of decline.
The blame, though, will fall upon those who tempted the Gods by declaring "an end to boom and bust", and who by taxing pension savings ensured that prudence was never their real watch word. As Tony Blair collects some further five figure speaking fee, he may reflect that he sowed the wind, but his country is set to reap the whirlwind.