Tag Archives: UK debt

UK coalition emergency budget – All Pain and No Gain?

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The much awaited “austerity budget” is due on 22nd June and both individuals and business communities await the various instruments of torture to be applied to direct and indirect taxation, benefits and spending cuts. There will be a lot of pain but how much can the electorate stand, noting that even if the election had provided another result the same impact would have resulted in the attempts to repair the damaged economy.

Key issues – repayment of UK debt whilst keeping inflation down, (currently around 3.5%), and interest rates as low as possible, (base rate at 0.5% for 15 months), and growing the economy. 

The backdrop to achieving target reductions are;-

Public Sector Pensions – in the past these have been self balancing within a few million £ but the current deficit is about £4 billion per annum with this rising to £10bn by 2015. The questions are; – why the situation has been allowed to get “out of control”, why should the private sector subsidise this and the whole population suffer cuts in public spending and tax increases. It is understood that private sector pensions have been dealing with deficits and surpluses for many years, but Government has never addressed the issue or even appeared concerned.

Unemployment – officially 2.5 million but with another 8.2 million, (over 20% of the working age population) unable to or not wanting to work – with the former being a significantly higher proportion!! Tax increases mooted in VAT, CGT and benefit reductions may provide a temporary boost in spending prior to their introduction, but then there is the re-stagnation of the economy with unemployment likely to rise even more. 

Interest Rates – at 0.5% for over a year and in theory great for those able to borrow, (albeit that rates are well over the base rate), and remaining at this level possibly into 2011, but a pittance for savers.

Inflation – even if it falls to the 2% target, (currently 3.5%), this is well over the ability of many people to maintain real income, with pitiful savings rates and many in employment already suffering wage cuts or freezes.

The above shows some of the pain but with so much uncertainty for the consumer, business, the economy in general and the ongoing Eurozone debt crisis posing threats to UK growth prospects, there is no real sign of when the gains will be seen by the private individual or business community.

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Volcanic Ash Cloud……..is it just smoke and mirrors?

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The best news in the last week for the political parties in the run up to the UK election has been the Icelandic ash cloud that has engulfed most of Northern Europe over the last few days. Apart from causing travel chaos to thousands of people and costing the travel and ancillary industries millions in lost revenues, there have been enormous “green savings” due to reduced carbon emissions.

The Liberal Democrats have benefited the most as the opinion polls seem to show they possibly have potentially a bigger influence in the next Government than expected by the Conservatives or Labour, following the first live UK election television debate. However, the big issues still remain and also the uncertainty of how anyone in power will tackle them, especially as many of these will not be resolved during the next five years.

Whatever the outcome of the election, hung parliament or a majority winner, addressing UK debt, public sector spending cuts, tax increases, health, education, decline of sterling, interest rates and inflation indicates a slow recovery plan over a number of years to bring prosperity back to businesses and consumers.

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Bank of England, Interest Rates and UK Debt forecasts

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For those with mortgages or loans last weeks decision by the Bank of England to keep the UK base rate at 0.5% is good news, but for net savers it is now a year of exceptionally low returns with inflation more than cancelling out any interest earned. Indeed, it is also lucky that UK Plc’s debt mountain is only attracting low levels of interest, as the Bank for International Settlements, (BIS), has stated “Interest payments on the UK’s public debt will double from 5% of GDP, (Gross Domestic Product), to 10% within a decade under the bank’s “baseline scenario” before spiraling upwards to 27% by 2040 – by far the highest among the OECD club of developed countries.” With the political parties currently parading their manifestos, none have managed to look beyond the next five years, (the next term of government), but the austerity measures we all will face indicate that their policies will only half the current deficit at best if all the public spending cuts, tax increases and efficiency initiatives deliver. The recession is over………………..?

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UK Election fever – or is it all media hype?

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At last the 6th May 2010, a date for the nation to decide on the next few years of Government. Which party, if any, will have the majority of the country’s vote and more importantly what will be the turnout level. The media have already done enough in the first few days since the announcement to put off would be voters by smothering us with their coverage and opinions on the state of each major party and the main issues as they see them.

Forget the nuances of tax and pensions for the top earners, it is the average and lower paid, unemployed, pensioners and businesses that need convincing on how politicians will deal with long term UK national debt, employment, interest rates, sterling, healthcare etc. Local authorities not delivering and high council tax levels are where the majority of the public see Government in action, (or not). Hospitals, education, re-cycling, road maintenance, (potholes and line painting), emergency services are a few of the issues to be addressed.

This is probably the most important election in decades and the media and politicians have the opportunity to engage with the nation and get everyone interested in the recovery of UK plc, but delivering change will involve some pain for all.

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