Public finances slide deeper into the red
Posted by seumasach on September 19, 2008
This is a hint at the extraordinary costs of public backing for the nascent private banking cartel. The price of this will be payed by all of us through taxation, cuts and, above all, inflation as the pound goes on falling( we are an import dependent economy). The vultures and parasites who fleeced the world for so long have come home to roost and pick the imperial heartland to the bone.
Ashley Seager
19th September, 2008
The public finances suffered yet another lurch into the red last month amid warnings of a record deficit this year that would force the next government to raise taxes or cut spending – or possibly both.
The overall shortfall between tax revenues and spending was £10.2bn in August – the worst figure for that month since such records began in 1993. Economists said the deficit could reach £70bn this financial year, double the 2007/08 figure and way above the £43bn estimate the chancellor, Alistair Darling, made in the budget in March.
A deficit of £70bn would easily exceed the previous record of £51bn set by the Conservative government of Sir John Major in 1993. For the April to August period, the deficit was running £12bn higher than in the same period last year – at £28bn.
The national debt figures lurched higher as the government’s nationalisation of Northern Rock’s £87bn debt came onto the books for the first time, pushing debt up to 43.3% of national income, well above the government’s self-imposed 40% ceiling.
Excluding Northern Rock, the benchmark stood at 38.3%. The Treasury is reviewing its two main fiscal rules – the second being that tax should cover current spending over an economic cycle. Both are likely to be broken even if the impact of Northern Rock is removed.
The government’s problem will be exacerbated by the downturn in the economy. Figures out on Wednesday showed the biggest rise in unemployment for 16 years in August, which will push down income tax receipts and increase benefit payments, pushing the deficit out still further.
The £2.7bn cost of unwinding the 10p tax debacle, the postponement of fuel duty rises and the temporary scrapping of the starting rate of stamp duty for house purchases will all push up the deficit, as will the housing market collapse.
This week’s 4,500 job losses at Lehman Brothers, added to other City job losses, are particularly bad news for the public finances because bankers pay a lot of income tax, analysts pointed out.
Jonathan Loynes of Capital Economics said: “The state of the public finances continues to go from dreadful to even worse. If this rate of increase is sustained, borrowing will hit £70bn this year.”
The figures show the government is struggling to control spending growth at a time when tax revenues are weakening.
Andrew Goodwin, an economist at the Ernst & Young Item Club, said: “If recent trends are sustained, borrowing would reach £64bn for the year as a whole. And with the economic outlook likely to worsen over the coming months there is a good chance that the out-turn could be even worse.”
Howard Archer, the chief UK and European economist at Global Insight, said the chancellor’s predictions had been “well and truly blown out of the water”.
The shadow chief secretary to the Treasury, Philip Hammond, said: “Gordon Brown has built our economy on a mountain of public and private debt, leaving Britain poorly prepared in the face of the current economic crisis. His fiscal rules are now totally discredited.
“This is yet more evidence of why we need a new fiscal framework to bring the public finances back under control – and a new government to implement it.”
Yvette Cooper, chief secretary to the Treasury, said: “Faced with unprecedented world shocks, it is right that we increase borrowing this year to help support the economy.
“We are cutting taxes by over £4bn for low and middle income families, and maintaining public sector investment to help families and the economy through these tougher times.”
In These New Times 
Thatch said
Tuning in to the Today programme this morning I learned that the Government had announced its latest rescue package for UK banks.
The Government is going to make £50b available for banks to access if they require funds to shore up their capital. This is likely to be in the form of preference shares. The first question is where is the cash coming from if as we are being told constantly, the government has no available cash. Presumably it is borrowing this from the market place, that same market place that won’t lend to other banks.
Secondly, what is the upside here for the British taxpayer? Bank shares are at a ten year low. Presumably over the medium term, with the guarantee of government support and a pledge that “we will do all that is necessary” these bank shares will rise considerably in value. Is the British tax payer getting the type of share that can be sold in due course and the benefit of the increase in share price realised?
The second element of the rescue is that the government looks like it is going to provide a guarantee for a bank which has to the market to replace it’s short term borrowing used to fund its long term mortgage lending. eg HBOS may need to replace £100b of this type of funding in the next three years or so. If the money market will not replace this borrowing the government intends to act as guarantor for the banks ability to meet any repayments on this money, and to bolster the security given to secure it. Again, any shortfall on the security will be picked up by the British taxpayer!
My question this morning is whether the market will see fit to accept this latest offer. The government and the Bank of England have been intervening for months now by providing cash for liquidity, to little effect. This is a bigger plunge, and is significant, but the market is not driven by sentiment. My worry is that the market will effectively say, “Thanks British Government, that is a nice offer, but we think that you can go higher”. Essentially they will play a game of poker and see just how far they can push not only our government but others around the world. If I am right and this is like poker, have we revealed our hand too early, and what else have we got to offer. Actually shouldn’t we be calling the markets bluff and saying, that’s it. Take it or leave it, there is no more.
inthesenewtimes said
It’s virtually a bottomless pit. Having been betrayed by all our political leaders we are now to be led to the sacrifice on the sacred alter of high finance. Listening to the punditry last night what struck me was that they didn’t seem to expect it to work. The government doesn’t expect it to work, but they have to do something and that something has to be within the parameters set down by their financier masters. Already the markets are looking suitably unimpressed. As yet there is no focus of opposition to all this but it is a grave situation for our whole population as we face a hyperinflationary economic collapse besides which the thirties will pale in comparison.