Wednesday, 22 August 2018

Good news for the exchequer, but there is trouble brewing

UK Ltd is financially back to the situation of 2007, when the debt accumulated by Blair/Brown was about to bite us as the transatlantic credit crunch hit. (The media release from the politically-independent Office for National Statistics is here.) Strangely, this good news has been published by the Guardian but I do not recall it being made much of by BBC's broadcasts - though it is on Red Button text.

The debt is still eye-wateringly huge, of course:
Public sector net debt (excluding public sector banks) was £1,777.5 billion at the end of July 2018, equivalent to 84.3% of gross domestic product (GDP), an increase of £17.5 billion (or a decrease of 1.7 percentage points as a ratio of GDP) on July 2017.

Public sector net debt (excluding both public sector banks and Bank of England) was £1,584.6 billion at the end of July 2018, equivalent to 75.2% of GDP, a decrease of £30.6 billion (or a decrease of 3.7 percentage points as a ratio of GDP) on July 2017.
Presumably the reduction of the debt ratio is the reason for the increase in the value of sterling over the last few days (as I write, it is at $1.29, two cents higher than a week ago, and there have been similar rises against other currencies). Investors in sterling are increasingly confident of it holding its value and the certainty of return. One would expect both sterling and the euro to rise further if there is a successful outcome to the autumn talks in Brussels or if the A50 application is withdrawn, but it is unlikely that we will see an immediate rise to levels over $1.45 which obtained before the June 2016 referendum. Just as the Brexit vote caused salami-slicing in business decisions rather than the wholesale immediate departure predicted by Osborne, Cameron and other numpties, so the return of international conference will be slow and gradual. The likes of Unilever are unlikely to reverse the major decision to move their HQ from London to another part of the EU, for instance.

Of course I welcome the return to the prudent housekeeping which Gordon Brown promised but never delivered. However, too much has been achieved by cuts in the public sector and not enough from raising money from people and corporations well able to contribute a little extra. There are already signs that Treasury miserliness is opening up cracks in civil society.

The troubles at the second-biggest prison in Europe, culminating in the suspension of its governor, and the more gross failure in Birmingham, point to a lack of investment in staff and facilities. There is a failure to pursue most criminal investigations to the end. Again, shortage of personnel in the police and CPS must be largely to blame. We pay even experienced nurses less than counter staff in John Lewis.

The immediate answer is to raise the tax take, which will probably not require a hike in rates. Simply raising the minimum wage (the so-called National Living Wage, another piece of Osborne sleight-of-mouth) to that determined by the Living Wage Foundation and enforcing its application will go a long way. Raising the wage floor will not only improve conditions for poorly-paid public servants, but also push up pay higher on the wage scale, proportionately increasing income tax.

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