Friday, December 11, 2009

Labour's Fiscal Fiction

So, the PBR came and went and must have left all those over excited Labour activists with a feeling of anti-climax and deep foreboding. I've not had time to blog in detail about the measures but it was unsurprising that it was pretty much all higher taxes (mostly delayed until after the election) with little detail on spending cuts.

Darling didn't manage to pull anything political out of his increasingly beaten up old vacuous hat that would really trouble the Tories. The IHT u-turn was funny to see. Clearly they were embarrassed by their hypocritical attacks on the Tory policy (even though it's not even a high priority for them in the new Parliament).

It seems that revelations today show that the PBR was something of a compromise between No. 10 and No. 11.

The Chancellor wanting a much more aggressive approach to bringing down the debt mountain and a clearer message to be sent out about the Government's intentions. It's clear now that, if Gordon Brown had had his way at the last reshuffle, Ed Balls, as Chancellor, would have implemented and even more cynical PBR, and that's saying something.

Even so, the measures in the PBR are not inspiring confidence that this Government is serious about debt reduction. This reality is well illustrated in this article in the FT:

FT: Investors take fright at ‘fiscal fiction'

A key quote sums up the concerns:

"Michael Saunders, an economist at Citigroup, said: “The PBR seeks to create a fiscal fiction that the deficit can be resolved solely by tax hikes on a relatively small share of the population – the few, not the many – and without painful public spending cuts. The revenue forecasts again look over-optimistic, and there are no public spending plans after 2010-11 – only vague forecasts.” "

Things are getting serious now. If the markets lose confidence we will all suffer. Lets hope the election comes sooner rather than later, as I suspect a change in government is what investors are holding out for.

UPDATE  22/12/09: Seems Labour MPs and supporters are also losing confidence in the governments "dividing line" strategy. If only more Labour people could see playing party politics during a major crisis like this is not a vote winner... The Audacity Of Pope Blog

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